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Foundations of Double Auctions from Theory and Practice

Author

Listed:
  • Simon Jantschgi

    (UZH - Universität Zürich [Zürich] = University of Zurich)

  • Heinrich H Nax

    (UZH - Universität Zürich [Zürich] = University of Zurich)

  • Bary Pradelski

    (MFO - Maison Française d'Oxford - MEAE - Ministère de l'Europe et des Affaires étrangères - CNRS - Centre National de la Recherche Scientifique, GHOST - Jeux, optimisation mathématique et systèmes stochastiques - Centre Inria de l'Université Grenoble Alpes - Inria - Institut National de Recherche en Informatique et en Automatique - LIG - Laboratoire d'Informatique de Grenoble - Inria - Institut National de Recherche en Informatique et en Automatique - CNRS - Centre National de la Recherche Scientifique - UGA - Université Grenoble Alpes - Grenoble INP - Institut polytechnique de Grenoble - Grenoble Institute of Technology - UGA - Université Grenoble Alpes)

  • Marek Pycia

    (UZH - Universität Zürich [Zürich] = University of Zurich)

Abstract

Double Auctions are among the most widespread market mechanisms that clear demand and supply in two-sided markets, notably on major stock exchanges. We provide a definition of Double Auctions that applies to both finite and infinite markets and is well-behaved in the limit. Our definition nests earlier formulations and allows us to formalize the Reference-Price Double Auction commonly used on stock exchanges. Our definition does not rely on any regularity assumptions and allows for ties and gaps in reported quotes, two phenomena that occur in practice. We axiomatize the class of Double Auctions in general as well as specific, prominent pricing rules. Finally, we provide a sufficient condition on traders' beliefs under which Double Auctions are asymptotically incentive-compatible, implying, in particular, that they are always Strategy-Proof in the Large.

Suggested Citation

  • Simon Jantschgi & Heinrich H Nax & Bary Pradelski & Marek Pycia, 2026. "Foundations of Double Auctions from Theory and Practice," Post-Print hal-05805525, HAL.
    • Handle: RePEc:hal:journl:hal-05805525
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