The optimality of a simple market mechanism

Mark A. Satterthwaite*, Steven R. Williams

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

48 Scopus citations

Abstract

Strategic behavior in a finite market can cause inefficiency in the allocation, and market mechanisms differ in how successfully they limit this inefficiency. A method for ranking algorithms in computer science is adapted here to rank market mechanisms according to how quickly inefficiency diminishes as the size of the market increases. It is shown that trade at a single market-clearing price in the k-double auction is worst-case asymptotic optimal among all plausible mechanisms: evaluating mechanisms in their least favorable trading environments for each possible size of the market, the k-double auction is shown to force the worst-case inefficiency to zero at the fastest possible rate.

Original languageEnglish (US)
Pages (from-to)1841-1863
Number of pages23
JournalEconometrica
Volume70
Issue number5
DOIs
StatePublished - 2002

Keywords

  • Double auction
  • Market mechanism
  • Rate of convergence

ASJC Scopus subject areas

  • Economics and Econometrics

Fingerprint Dive into the research topics of 'The optimality of a simple market mechanism'. Together they form a unique fingerprint.

Cite this