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An ascending double auction

Author

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  • Michael Peters

    ()

  • Sergei Severinov

    ()

Abstract

This paper studies an internet trading mechanism similar to the one described in Peters and Severinov (2000) in a market where traders values are interdependent. Conditions are given for which this mechanism has a perfect Bayesian equilibrium which supports allocations that are the same as the allocations supported by a rational expectations equilibrium. In particular, this equilibrium supports allocations that are ex post efficient. We show how to construct the rational expectations equilibrium belief function from posterior beliefs at terminal information sets of the internet trading game. The mechanism is also compared to a double auction.
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Suggested Citation

  • Michael Peters & Sergei Severinov, 2008. "An ascending double auction," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 37(2), pages 281-306, November.
  • Handle: RePEc:spr:joecth:v:37:y:2008:i:2:p:281-306 DOI: 10.1007/s00199-007-0297-5
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    References listed on IDEAS

    as
    1. Martin W. Cripps & Jeroen M. Swinkels, 2006. "Efficiency of Large Double Auctions," Econometrica, Econometric Society, vol. 74(1), pages 47-92, January.
    2. Radner, Roy, 1979. "Rational Expectations Equilibrium: Generic Existence and the Information Revealed by Prices," Econometrica, Econometric Society, vol. 47(3), pages 655-678, May.
    3. Peters, Michael & Severinov, Sergei, 2006. "Internet auctions with many traders," Journal of Economic Theory, Elsevier, pages 220-245.
    4. Gresik, Thomas A. & Satterthwaite, Mark A., 1989. "The rate at which a simple market converges to efficiency as the number of traders increases: An asymptotic result for optimal trading mechanisms," Journal of Economic Theory, Elsevier, vol. 48(1), pages 304-332, June.
    5. Piero Gottardi & Roberto Serrano, 2005. "Market Power And Information Revelation In Dynamic Trading," Journal of the European Economic Association, MIT Press, vol. 3(6), pages 1279-1317, December.
    6. Birulin, Oleksii & Izmalkov, Sergei, 2011. "On efficiency of the English auction," Journal of Economic Theory, Elsevier, pages 1398-1417.
    7. Wolfgang Pesendorfer & Jeroen M. Swinkels, 1997. "The Loser's Curse and Information Aggregation in Common Value Auctions," Econometrica, Econometric Society, vol. 65(6), pages 1247-1282, November.
    8. Krishna, Vijay, 2003. "Asymmetric English auctions," Journal of Economic Theory, Elsevier, vol. 112(2), pages 261-288, October.
    9. Lawrence M. Ausubel, 2004. "An Efficient Ascending-Bid Auction for Multiple Objects," American Economic Review, American Economic Association, pages 1452-1475.
    10. Jeroen M. Swinkels & Wolfgang Pesendorfer, 2000. "Efficiency and Information Aggregation in Auctions," American Economic Review, American Economic Association, pages 499-525.
    11. Rustichini, Aldo & Satterthwaite, Mark A & Williams, Steven R, 1994. "Convergence to Efficiency in a Simple Market with Incomplete Information," Econometrica, Econometric Society, vol. 62(5), pages 1041-1063, September.
    12. Asher Wolinsky, 1988. "Dynamic Markets with Competitive Bidding," Review of Economic Studies, Oxford University Press, vol. 55(1), pages 71-84.
    13. Jeroen M. Swinkels & Wolfgang Pesendorfer, 2000. "Efficiency and Information Aggregation in Auctions," American Economic Review, American Economic Association, pages 499-525.
    14. Gresik, Thomas A., 1991. "Ex ante incentive efficient trading mechanisms without the private valuation restriction," Journal of Economic Theory, Elsevier, vol. 55(1), pages 41-63, October.
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    Cited by:

    1. Yusuke Kamishiro & Roberto Serrano, 2011. "Equilibrium Blocking in Large Quasilinear Economies," Mathematics of Operations Research, INFORMS, vol. 36(3), pages 552-567, August.

    More about this item

    Keywords

    Double auction; Rational expectations; Extensive form games; Bayesian games; C72; D02; D44;

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • D02 - Microeconomics - - General - - - Institutions: Design, Formation, Operations, and Impact
    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions

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