The multiple unit double auction

Charles R. Plott, Peter Gray
1990 Journal of Economic Behavior and Organization  
The note outlines institutional features of an open outcry market that pennit multiple unit or "block" trades. The purpose of the note is to introduce the process as a tool to be used in economics experiments. The detailed rules governing the multiple unit double auction (MUDA) are stated for the case where offers are tendered by voice as opposed to through a computer. The results of markets that use the rules are reported as a demonstration that convergence to equilibrium price traditionally
more » ... served in experimental markets remains with the use of the MUDA process. This note is limited to a discussion of a market instrument which was designed for experimental economics. The institutional features of a new market process are outlined. The process, which is called the multiple unit double auction (MUDA) pennits multiple unit or "block" trades in the framework of a double auction. Because the process allows volume to move faster than the single unit counterparts, it allows researchers greater flexibility in experimental design. The single unit double auction (DA) has been an important tool for the development of an experimental methodology and it has also served as a background "constant" against which institutional influences on market perfonnance could be measured. The MUDA has the same potential as serving as a background process that operates in real t. ime to clear large volumes. Within the traditional DA organization, markets with large volumes 1 and many traders are diffi cult to study. A primary feature of the traditional DA is that both buyers and sellers tender bids and asks for a single unit of the commodity. Such tenders stand until accepted, canceled, or replaced by a better bid or ask. In computerized versions of the traditional double auction, confi nnation of trades is required. Thus, the market proceeds as a series of auctions for single units. In each auction bids ascend and asks decline until a contract (acceptance) occurs. Typically, in an oral double auction market, approximately thirty seconds per unit of equilibrium volume is the time allowed for a market period. The time is cut to a minimum of eight seconds per equilibrium trade in computerized versions with a standby queue. Since each traded unit is accompanied by bids and asks, the time used for trading will vary according to the number of
doi:10.1016/0167-2681(90)90089-v fatcat:m3iz44jjwfeqzf3mbda3dorwsi