Double Auction Dynamics: Structural Effects of Non-Binding Price Controls

Posted: 26 Oct 2004

See all articles by Shyam Sunder

Shyam Sunder

Yale University - School of Management; Yale University - Cowles Foundation

Dhananjay (Dan) K. Gode

New York University (NYU) - Department of Accounting

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Abstract

In competitive equilibrium, non-binding price controls (that is, price floors below and ceilings above the equilibrium) should not affect market outcomes, but in laboratory experiments they do. We build a simple dynamic model of double auction markets with zero-intelligence (ZI) computer traders that accounts for many, though not all, of the discrepancies between the data and the Walrasian tatonnement predictions. The success of the model in organizing the data, and in isolating various consequences of price controls, shows that the simple ZI model is a powerful tool to gain insights into the dynamics of market institutions.

Keywords: Price controls, zero-intelligence, double auction dynamics, allocative efficiency

JEL Classification: D44, D61

Suggested Citation

Sunder, Shyam and Gode, Dhananjay (Dan) K., Double Auction Dynamics: Structural Effects of Non-Binding Price Controls. Journal of Economic Dynamics & Control, Vol. 28, pp. 1707-1731, 2004. Available at SSRN: https://ssrn.com/abstract=607722

Shyam Sunder

Yale University - School of Management ( email )

165 Whitney Avenue
P.O. Box 208200
New Haven, CT 06520-8200
United States
203-432-6160 (Phone)

HOME PAGE: http://www.som.yale.edu/faculty/sunder/

Yale University - Cowles Foundation

Box 208281
New Haven, CT 06520-8281
United States

Dhananjay (Dan) K. Gode (Contact Author)

New York University (NYU) - Department of Accounting ( email )

40 West 4th Street
Suite 10-180
New York, NY 10012
United States
212-998-0021 (Phone)
212-995-4004 (Fax)

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