Symmetric Equilibria in Double Auctions with Markdown Buyers and Markup Sellers

Roberto Cervone (), Stefano Galavotti () and Marco Li Calzi ()
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Roberto Cervone: Department of Applied Mathematics, University of Venice

No 187, Working Papers from Department of Applied Mathematics, University of Venice

Abstract: Zhan and Friedman (2007) study double auctions where buyers and sellers are constrained to using simple markdown and markup rules. In spite of the alleged symmetry in roles and assumptions, buyers are shown to have the upper hand both in the call market and in the continuous double auction. We replicate the study and show that their formulation of the sellers’ markup strategies, while seemingly natural, is strategically unsound because of a hidden asymmetry. We introduce a symmetric set of markup strategies for the sellers and show how it explains away the paradox of buyers’ advantage in three different double-sided market protocols.

Keywords: market engineering; trading protocols; exchange market (search for similar items in EconPapers)
JEL-codes: D51 D61 D40 C63 (search for similar items in EconPapers)
Date: 2009-06
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