Published online by Cambridge University Press: 06 July 2010
Consider a market with the following characteristics: 1) privacy, that is, each agent knows only his own valuation (or cost) conditions; 2) exchange follows the rules of the oral double auction, that is, buyers freely announce bids or accept offers and sellers freely announce offers or accept bids; 3) aggregate market supply and demand per trading period is stationary for at least two to three periods; and 4) there are at least four buyers, and as many sellers. The literature reporting the results of a large number of experimental markets with these characteristics documents what appears to be a remarkably rapid convergence to a competitive equilibrium (CE). However, any claim of double auction (DA) “convergence” to the CE can only have meaning in one of three senses:
(i) The CE is attained immediately.
(ii) After T periods of trading, some measure of the market's state, such as mean price, is nearer, relative to experimental sampling variability, to a CE than to some distinct alternative equilibrium such as a monopoly or Nash equilibrium.
(iii) After T periods of trading, this measure is nearer to a CE in DA experimental markets than in markets organized under a different institution of contract, for example, a sealed-bid auction.