Competitive Market Behavior: Convergence and Asymmetry in the Experimental Double Auction

Abstract

We conducted a large number of controlled continuous double auction experiments to reproduce and stress-test the phenomenon of convergence to competitive equilibrium under private information. A common finding across a total of 104 markets (involving 1k+ individual subjects and trading rounds) is convergence after a handful of trading periods. Initially, however, there is evidence for an inherent asymmetry that favors buyers, which is expressed in symmetric markets by deal prices that are significantly below equilibrium prices. Analysis of the 80k+ observations of individual bids and asks helps identify several empirical ingredients contributing to the observed phenomena including higher initial aggressiveness amongst buyers than sellers.

Keywords: competitive equilibrium, double auction, experiments, feedback, large-scale replication

JEL Classification: D83; G14; D90