Competitive market behavior: convergence and asymmetry in the experimental double auction

Barbara Ikica (1, 2) , Simon Jantschgi (1) , Heinrich H Nax (1, 2) , Diego G Nuñez Duran (1, 2) , Bary S R Pradelski (3, 1, 2)

1 UZH - Universität Zürich [Zürich] = University of Zurich
2 ETH Zürich - Eidgenössische Technische Hochschule - Swiss Federal Institute of Technology [Zürich]
3 POLARIS - Performance analysis and optimization of LARge Infrastructures and Systems

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 with decentralized trading feedback. Our main finding is that across a total of 104 markets (involving over 1,700 subjects), convergence occurs after a handful of trading periods. Initially, however, there is an inherent asymmetry that favors buyers, typically resulting in prices below equilibrium levels. Analysis of over 80,000 observations of individual bids and asks helps identify empirical ingredients contributing to the observed phenomena including higher levels of aggressiveness initially among buyers than sellers.

Domains: Economics and Finance

Barbara Ikica, Simon Jantschgi, Heinrich H Nax, Diego G Nuñez Duran, Bary S R Pradelski. Competitive market behavior: convergence and asymmetry in the experimental double auction. International Economic Review, 2023, 64 (3), pp.1087 - 1126. ⟨10.1111/iere.12630⟩. ⟨hal-04367512⟩