Double Auction Market Trading and Income Inequality: An initial investigation

Paul Brewer and Anmol Ratan

No 12-17, Monash Economics Working Papers from Monash University, Department of Economics

Abstract: We examine robot trading in two double auction environments with identical aggregate supply and demand curves but different individual agent supply and demand curves. The Law of Supply and Demand, based on the aggregate curves, predicts the same competitive equilibrium price and quantity for the two treatments. The individual supply and demand curves relative to the competitive equilibrium price predict individual profits. The first treatment is constructed so that in competitive equilibrium the resulting incomes are equal for all agents. The second treatment is constructed to yield substantial income inequality in competitive equilibrium. The third and fourth treatments change the strategy of all but one trader on each side of the market to a “sniper” strategy that is more aggressive. While we find that the outcomes of the robot trading approximately match the theoretical predictions, we also find noisy trading produces inequality in the first treatment, and a reduction of inequality in the second treatment. In markets populated by snipers, the low realized efficiency reduces the level of profits, and profits are also more skewed than that predicted by the neoclassical theory.

Pages: 32 pages
Date: 2017-04
New Economics Papers: this item is included in nep-exp
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