The Double Auction

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The Double Auction
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The Double Auction is like an Econ Lab to
illustrate

• How markets work
• How good the competitive equilibrium model
  (supply and demand) is as a model of a market
• Experimental economics
• An important branch of economic research today
  with many real world applications

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Key Features of a Double Auction

• Both sellers and buyers call out prices
• Buyers bid and sellers ask
• Trading takes place during a trading period
• A trade take place when
• a buyer accepts a sellers ask
• a seller accepts a buyers bid

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Buyers

• each buyer has a marginal benefit table for the
  good
• gain or reward is the difference between marginal
  benefit and the price
• try to get a low price, but compete with other
  buyers
• Any new bid must be higher than outstanding bid

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Sellers

• each seller has a marginal cost schedule for
  the good
• sellers gain or reward is the difference between
  the price and the marginal cost
• try to get a high price, but must compete with
  other sellers
• Any new ask must be lower than outstanding ask

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Observe Actual Double Auction

• Notice sellers and buyers first examine marginal
  costs and marginal benefits
• During the trading period
• Notice how bids, asks, and trades are posted on
  the board
• Notice how the price changes during the trading
  period