Satterthwaite, Mark, 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
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 |
| Library of Congress subject classification: | H Social Sciences > HB Economic Theory H Social Sciences > HG Finance |
| Journal of Economic Literature Classification System: | C - Mathematical and Quantitative Methods > C0 - General > C00 - General G - Financial Economics > G1 - General Financial Markets > G10 - General |
| Sets: | Departments > Finance Research centres and groups > Financial Markets Group (FMG) |
| Date Deposited: | 13 May 2014 14:05 |
| URL: | http://eprints.lse.ac.uk/46342/ |
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