Double Auction Mechanisms on Markovian Networks

This paper studies the double auction (DA) mechanism in Ma and Li (2011) for a class of exchange economies. We extend their results to more general cases where sellers and buyers each form a complex time non-homogeneous Markovian chain, as specified in Ram et al. (2009), in the communication of their private information. A computational experiment is provided. The results of the experiment show that the DA mechanism can quickly integrate new information to an equilibrium. But formation of bubbles and crashes is also observed in the experiment, consistent with our theorems, which together with the experimental results provide new evidence that a DA mechanism, widely utilized in real exchange markets, may contribute to the excess volatility identified in Shiller (1981) and LeRoy and Porter (1981)