The Asymptotics of Price and Strategy in the Buyer's Bid Double Auction

61 Pages Posted: 31 Aug 2014 Last revised: 9 Dec 2020

See all articles by Steven R. Williams

Steven R. Williams

University of Illinois at Urbana-Champaign - Department of Economics

Konstantinos E. Zachariadis

School of Economics and Finance, Queen Mary University of London

Date Written: December 9, 2020

Abstract

In a model with correlated and interdependent values/costs, we identify for the buyer's bid double auction the asymptotic distributions of the price and of two order statistics in the first order conditions for optimal bidding/asking, all of which are normal. The asymptotic distribution of price is used to investigate the shortcomings of the price as an aggregator of information as the common value case is approached. Substitution of the asymptotic distributions into the first order conditions can permit the solution for approximately optimal bids/asks that provide insight into what is "first order" in a trader’s strategic decision-making, which has been difficult to obtain through analysis of equilibrium. The effectiveness of all approximations along with several comparative statics predictions are tested using calculated Bayesian-Nash equilibria.

Keywords: double auction, rational expectations equilibrium, interdependent value, common value, central limit theorem

JEL Classification: C63, D44, D82

Suggested Citation

Williams, Steven R. and Zachariadis, Konstantinos E., The Asymptotics of Price and Strategy in the Buyer's Bid Double Auction (December 9, 2020). Available at SSRN: https://ssrn.com/abstract=2489016 or http://dx.doi.org/10.2139/ssrn.2489016

Steven R. Williams

University of Illinois at Urbana-Champaign - Department of Economics ( email )

410 David Kinley Hall
1407 W. Gregory
Urbana, IL 61801
United States
217-333-4516 (Phone)

Konstantinos E. Zachariadis (Contact Author)

School of Economics and Finance, Queen Mary University of London ( email )

Graduate Centre
Mile End Campus
London, E1 4NS
United Kingdom
+44 20 7882 8698 (Phone)

HOME PAGE: http://www.konstantinosezachariadis.com

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