Dynamic Ex Post Equilibrium, Welfare, and Optimal Trading Frequency in Double Auctions
Simon Fraser University (SFU) - Department of Economics
Massachusetts Institute of Technology (MIT) - Sloan School of Management
September 1, 2013
We characterize a dynamic ex post equilibrium in a sequence of uniform-price double auctions. Bidders start with private inventories, receive over time a sequence of private signals, have interdependent and linearly decreasing marginal values, and trade with demand schedules. In our ex post equilibrium, each bidder's strategy remains optimal even if he would observe the concurrent and historical private information of other bidders; therefore, the ex post equilibrium is robust to distributions of signals and inventories. The equilibrium prices aggregate dispersed private information, and the equilibrium allocations converge to the efficient allocation exponentially over time. The socially optimal trading frequency is low for scheduled arrivals of information but is high for stochastic arrivals of information.
Number of Pages in PDF File: 42
Keywords: dynamic ex post equilibrium, trading frequency, welfare, double auction
JEL Classification: D44, D82, G14working papers series
Date posted: April 16, 2012 ; Last revised: September 9, 2013
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