The Alternating Double Auction Market: A Game Theoretic and Experimental Investigation
Springer Science & Business Media, Oct 28, 1998 - Business & Economics - 350 pages
The alternating double auction market institution is presented as a discrete time version of the open outcry market. The game in extensive form is analyzed in an almost perfect information setting, using the concept of subgame perfectness. By applying two new equilibrium selection criteria, a general existence result is obtained for "impatience equilibria" of the game. All such equilibria are shown to have unique properties concerning the traded quantities and prices. The most important results are that the equilibrium prices are independent of the number of traders and are always very close to - if not inside - the range of competitive prices. The latter can be evaluated as game theoretic support for the convergence of prices to the competitive price. The process of price formation is traced by applying the learning direction theory and introducing the "anchor price hypothesis".
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accept a trade alternating double auction auction market game clearing price range contract price deviation contract proposals current market bid double auction market equilibrium of G extra-marginal seller extra-marginal traders falling price paths ﬁrst decision stage ﬁrst market phase freq frequency ratio d)/(D game segment game theoretic impatience equilibrium incentive to deviate marginal trader market ask market clearing price market phase subgame Maximum contract price median value moving market side non-extra-marginal buyers Number of offers Number of submitted Number of traders offer frequency ratio offers for units opening market side outcome p-own 8 asks Panel Period Period Period player valuation previous period price paths 0.00 proposed contract price proposer's curses quasi-pure subgame perfect rank of traded redemption value refrain from submitting second market phase second moving market simpliﬁed alternating double simulation rounds speciﬁed strategy combination subgame perfect equilibrium trade occurs truncated game G upper quartile bound