Stability and Optimal Double Auction Design for a Two-Sided Market

We investigate the stability of internet platform trading mechanisms using the notion of ex-ante incentive compatible core de ned by Forges, Mertens, and Vohra (2002) in the context of an exchange economy. A mechanism can be blocked by a single buyer and seller pair if they can nd an interim incentive-compatible trading mechanism that gives them higher ex-ante expected utilities. Standard double auction mechanisms like the trade reduction mechanism and the McAfee double auction mechanism are not single-buyer-single-seller (SBSS) ex-ante stable. We characterize interim incentive-compatible, interim individually-rational, symmetric, revenuemaximizing mechanisms that are SBSS ex-ante stable using methods in Myerson and Satterthwaite (1983)