Cookies?
Library Header Image
LSE Research Online LSE Library Services

Optimality versus practicality in market design: a comparison of two double auctions

Satterthwaite, Mark and Williams, Steven R. and Zachariadis, Konstantinos (2014) Optimality versus practicality in market design: a comparison of two double auctions. Games and Economic Behavior, 86. pp. 248-263. ISSN 1095-7235

Full text not available from this repository.

Identification Number: 10.1016/j.geb.2014.03.014

Abstract

We consider a market for indivisible items with m buyers and m sellers. Traders privately know their values/costs, which are statistically dependent. Two mechanisms are considered. The buyer's bid double auction collects bids and asks from traders and determines the allocation by selecting a market-clearing price. It fails to achieve all possible gains from trade because of strategic bidding. The designed mechanism is a revelation mechanism in which honest reporting of values/costs is incentive compatible and all gains from trade are achieved. This optimality, however, comes at the expense of plausibility: (i) the monetary transfers among the traders are defined in terms of the traders' beliefs about each other's value/cost; (ii) a trader may suffer a loss ex post; (iii) the mechanism may run a surplus/deficit ex post. We compare the virtues of the simple yet mildly inefficient buyer's bid double auction to the flawed yet perfectly efficient designed mechanism.

Item Type: Article
Official URL: http://www.journals.elsevier.com/journal-of-econom...
Additional Information: © 2014 Elsevier Inc
Subjects: H Social Sciences > HB Economic Theory
H Social Sciences > HG Finance
Sets: Departments > Finance
Research centres and groups > Financial Markets Group (FMG)
Date Deposited: 13 May 2014 14:05
Last Modified: 13 May 2014 14:05
URI: http://eprints.lse.ac.uk/id/eprint/46342

Actions (login required)

View Item View Item