IDEAS home Printed from
   My bibliography  Save this article

Bilateral trading in divisible double auctions


  • Du, Songzi
  • Zhu, Haoxiang


Existing models of divisible double auctions typically require three or more traders—when there are two traders, the usual linear equilibria imply market breakdowns unless the traders' values are negatively correlated. This paper characterizes a family of nonlinear ex post equilibria in a divisible double auction with only two traders, who have interdependent values and submit demand schedules. The equilibrium trading volume is positive but less than the first best. Closed-form solutions are obtained in special cases. Moreover, no nonlinear ex post equilibria exist if: (i) there are n≥4 symmetric traders or (ii) there are 3 symmetric traders with pure private values. Overall, our nonlinear equilibria fill the “n=2” gap in the divisible-auction literature and could be a building block for analyzing strategic bilateral trading in decentralized markets.

Suggested Citation

  • Du, Songzi & Zhu, Haoxiang, 2017. "Bilateral trading in divisible double auctions," Journal of Economic Theory, Elsevier, vol. 167(C), pages 285-311.
  • Handle: RePEc:eee:jetheo:v:167:y:2017:i:c:p:285-311 DOI: 10.1016/j.jet.2016.11.001

    Download full text from publisher

    File URL:
    Download Restriction: Full text for ScienceDirect subscribers only

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    1. Xavier Vives, 2011. "Strategic Supply Function Competition With Private Information," Econometrica, Econometric Society, vol. 79(6), pages 1919-1966, November.
    2. Duffie, Darrell & Malamud, Semyon & Manso, Gustavo, 2014. "Information percolation in segmented markets," Journal of Economic Theory, Elsevier, vol. 153(C), pages 1-32.
    3. Darrell Duffie, 2012. "Over-The-Counter Markets," Introductory Chapters,in: Dark Markets: Asset Pricing and Information Transmission in Over-the-Counter Markets Princeton University Press.
    4. Milgrom, Paul & Stokey, Nancy, 1982. "Information, trade and common knowledge," Journal of Economic Theory, Elsevier, vol. 26(1), pages 17-27, February.
    5. Marzena Rostek & Marek Weretka, 2012. "Price Inference in Small Markets," Econometrica, Econometric Society, vol. 80(2), pages 687-711, March.
    6. Albert S. Kyle, 1989. "Informed Speculation with Imperfect Competition," Review of Economic Studies, Oxford University Press, vol. 56(3), pages 317-355.
    7. Satterthwaite, Mark A. & Williams, Steven R., 1989. "Bilateral trade with the sealed bid k-double auction: Existence and efficiency," Journal of Economic Theory, Elsevier, vol. 48(1), pages 107-133, June.
    8. Dimitri Vayanos, 1999. "Strategic Trading and Welfare in a Dynamic Market," Review of Economic Studies, Oxford University Press, vol. 66(2), pages 219-254.
    9. Robert Shimer & Iván Werning, 2015. "Efficiency and Information Transmission in Bilateral Trading," NBER Working Papers 21495, National Bureau of Economic Research, Inc.
    Full references (including those not matched with items on IDEAS)

    More about this item


    Divisible double auctions; Bilateral trading; Bargaining; Ex post equilibrium;

    JEL classification:

    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading


    Access and download statistics


    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:jetheo:v:167:y:2017:i:c:p:285-311. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Dana Niculescu). General contact details of provider: .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.