Double auction

A double auction is a process of buying and selling goods when potential buyers submit their bids and potential sellers simultaneously submit their ask prices to an auctioneer, and then an auctioneer chooses some price p that clears the market: all the sellers who asked less than p sell and all buyers who bid more than p buy at this price p. Buyers and sellers that bid or ask for exactly p are also included. A double auction is a process of buying and selling goods when potential buyers submit their bids and potential sellers simultaneously submit their ask prices to an auctioneer, and then an auctioneer chooses some price p that clears the market: all the sellers who asked less than p sell and all buyers who bid more than p buy at this price p. Buyers and sellers that bid or ask for exactly p are also included. As well as their direct interest, double auctions are reminiscent of Walrasian auction and have been used as a tool to study the determination of prices in ordinary markets. A simple example of a double auction is a bilateral trade scenario, in which there is a single seller who values his product as S (e.g. the cost of producing the product), and a single buyer who values that product as B. From an economist's perspective, the interesting problem is to find a competitive equilibrium - a situation in which the supply equals the demand. In the simple bilateral trade scenario, if B≥S then any price in the range is an equilibrium price, since both the supply and the demand equal 1. Any price below S is not an equilibrium price since there is an excess demand, and any price above B is not an equilibrium price since there is an excess supply. When B<S, any price in the range (B,S) is an equilibrium price, since both the supply and the demand equal 0 (the price is too high for the buyer and too low for the seller).