The rate at which a simple market converges to efficiency as the number of traders increases: An asymptotic result for optimal trading mechanisms

Thomas A. Gresik*, Mark A Satterthwaite

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

77 Scopus citations

Abstract

Private information in an independent, private-values market provides incentives to traders to manipulate equilibrium prices strategically. This strategic behavior precludes ex post efficient market performance. Increasing the number of traders improves the efficiency of some trading mechanisms by enabling them to better utilize the private information traders' bids and offers reveal. This paper shows that the expected inefficiency of optimally designed mechanisms, relative to ex post efficient allocations, decreases almost quadratically as the number of traders increases.

Original languageEnglish (US)
Pages (from-to)304-332
Number of pages29
JournalJournal of Economic Theory
Volume48
Issue number1
DOIs
StatePublished - Jun 1989

ASJC Scopus subject areas

  • Economics and Econometrics

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