Ex Post Equilibria in Double Auctions of Divisible Assets
Simon Fraser University (SFU) - Department of Economics
Massachusetts Institute of Technology (MIT) - Sloan School of Management
March 22, 2013
We characterize ex post equilibria in uniform-price double auctions of divisible assets. Bidders receive private signals and inventories, have interdependent and linearly decreasing marginal values, and bid with demand schedules. In a static double auction we characterize a linear ex post equilibrium, in which no bidder would deviate from his strategy even if he would observe the signals and inventories of other bidders. Moreover, under certain conditions this ex post equilibrium is unique. In a dynamic market with a sequence of double auctions and stochastic arrivals of new signals, we characterize a dynamic ex post equilibrium, whose allocation path converges exponentially in time to the efficient level. We demonstrate that the socially optimal trading frequency depends on the arrival process of new information. Our ex post equilibrium aggregates dispersed private information and is robust to distributional assumptions and details of market design.
Number of Pages in PDF File: 49
Keywords: ex post equilibrium, double auction, information aggregation, dynamic trading, trading frequency
JEL Classification: D44, D82, G14working papers series
Date posted: April 16, 2012 ; Last revised: March 27, 2013
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