The Simplified Alternating Double Auction Market - A Game Theoretic Analysis

Abstract

Assume the demand and supply curves in an alternating double auction market are normal, i.e. a monotonically falling demand and a monotonically rising supply curve. Classical market analysis assumes all trades will occur at the market clearing price p*, which lies on the intersection of the demand and supply curves. However, since we have a finite number of players and all values are integers, the intersection of the demand and supply curves must not necessarily be a point. Thus, a range of prices can exist (a market clearing price range), in which classical market analysis would expect the competitive equilibrium.