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Centralizing Disconnected Markets? An Irrelevance Result

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  • Wittwer, Milena

Abstract

This article compares centralized with disconnected markets in which n>2 strategic agents trade two perfectly divisible goods. In a multi-goods uniform-price double auction (centralized market) traders can make their demand for one good contingent on the price of the other good. Interlinking demands across goods is - by design - not possible when each good is traded in separate, single-good uniform-price double auctions (disconnected market). Here, agents are constrained in the way they can submit their joint preferences. I show for a class of models that equilibrium allocations and efficiency of centralized and disconnected markets nevertheless coincide when the total supply of the goods is known or perfectly correlated. This suggests that disconnected markets perform as well as centralized markets when the underlying uncertainty that governs the goods' market prices is perfectly correlated.

Suggested Citation

  • Wittwer, Milena, 2017. "Centralizing Disconnected Markets? An Irrelevance Result," MPRA Paper 76534, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:76534
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    References listed on IDEAS

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    More about this item

    Keywords

    Disconnected markets; divisible goods; multi-unit double auctions; trading;

    JEL classification:

    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions
    • D47 - Microeconomics - - Market Structure, Pricing, and Design - - - Market Design
    • 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

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