Theoretical Supply and Demand for Double Auction Experiment
7
6
5
Price
4
3
2
1
Demand
Supply
0
0
2
4
6
8
10
Quantity
12
14
16
18
20
Experiment Information
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Theoretical Predictions:
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Quantity: 10 units
Price: $3.90-$4.00
Net Economic Benefits: $20
What were we supposed to learn in the experiment?
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Without any central guidance, a free market will lead to
equilibrium between supply and demand (as if by “an invisible
hand”)
At this equilibrium the net economic benefits are greatest to
the society – we have maximized the “wealth of the nation”
Notes:
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DA market rules similar to those in major securities markets
(e.g., NYSE).
Experimental evidence shows that double auction market is
generally highly efficient, even with few buyers/sellers.
Experiment Results
Period 1
Quantity
Price (range)
Price (average)
Efficiency
8
3.00 – 4.20
$3.78
92%
Period 2
Period 3
Period 4
Period 5
Efficiency: % of total economic benefits available captured.
Perfectly competitive market has efficiency of 100%.