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The Double Auction

The Double Auction. The Double Auction is like an “Econ Lab” to illustrate. How markets work How good the competitive equilibrium model (supply and demand) is as a model of a market Experimental economics An important branch of economic research today with many real world applications.

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The Double Auction

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  1. The Double Auction

  2. The Double Auction is like an “Econ Lab” to illustrate • How markets work • How good the competitive equilibrium model (supply and demand) is as a model of a market • Experimental economics • An important branch of economic research today with many real world applications

  3. Key Features of a Double Auction • Both sellers and buyers call out prices • Buyers “bid” and sellers “ask” • Trading takes place during a trading period • A trade take place when • a buyer accepts a sellers ask • a seller accepts a buyers bid

  4. Buyers • each buyer has a “marginal benefit” table for the good • gain or reward is the difference between marginal benefit and the price • try to get a low price, but compete with other buyers • Any new bid must be higher than outstanding bid

  5. Sellers • each seller has a “marginal cost” schedule for the good • seller’s gain or reward is the difference between the price and the marginal cost • try to get a high price, but must compete with other sellers • Any new ask must be lower than outstanding ask

  6. Observe Actual Double Auction • Notice sellers and buyers first examine marginal costs and marginal benefits • During the trading period • Notice how bids, asks, and trades are posted on the board • Notice how the price changes during the trading period

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