IDEAS home Printed from https://ideas.repec.org/p/arx/papers/2105.05427.html
   My bibliography  Save this paper

Random Double Auction: A Robust Bilateral Trading Mechanism

Author

Listed:
  • Wanchang Zhang

Abstract

I construct a novel random double auction as a robust bilateral trading mechanism for a profit-maximizing intermediary who facilitates trade between a buyer and a seller. It works as follows. The intermediary publicly commits to charging a fixed commission fee and randomly drawing a spread from a uniform distribution. Then the buyer submits a bid price and the seller submits an ask price simultaneously. If the difference between the bid price and the ask price is greater than the realized spread, then the asset is transacted at the midpoint price, and each pays the intermediary half of the fixed commission fee. Otherwise, no trade takes place, and no one pays or receives anything. I show that the random double auction maximizes the worst-case expected profit across all dominant-strategy incentive compatible and ex-post individually rational mechanisms for the symmetric case. I also construct a robust trading mechanism with similar properties for the asymmetric case.

Suggested Citation

  • Wanchang Zhang, 2021. "Random Double Auction: A Robust Bilateral Trading Mechanism," Papers 2105.05427, arXiv.org, revised May 2022.
    • Handle: RePEc:arx:papers:2105.05427
    as

    Download full text from publisher

    File URL: http://arxiv.org/pdf/2105.05427
    File Function: Latest version
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Kim-Sau Chung & J.C. Ely, 2007. "Foundations of Dominant-Strategy Mechanisms," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 74(2), pages 447-476.
    2. Vinicius Carrasco & Vitor Farinha Luz & Paulo K. Monteiro & Humberto Moreira, 2019. "Robust mechanisms: the curvature case," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 68(1), pages 203-222, July.
    3. Auster, Sarah, 2018. "Robust contracting under common value uncertainty," Theoretical Economics, Econometric Society, vol. 13(1), January.
    4. Çağıl Koçyiğit & Garud Iyengar & Daniel Kuhn & Wolfram Wiesemann, 2020. "Distributionally Robust Mechanism Design," Management Science, INFORMS, vol. 66(1), pages 159-189, January.
    5. Dirk Bergemann & Benjamin Brooks & Stephen Morris, 2016. "Informationally Robust Optimal Auction Design," Working Papers 084_2016, Princeton University, Department of Economics, Econometric Research Program..
    6. Dirk Bergemann & Benjamin Brooks & Stephen Morris, 2019. "Revenue Guarantee Equivalence," American Economic Review, American Economic Association, vol. 109(5), pages 1911-1929, May.
    7. Dirk Bergemann & Benjamin Brooks & Stephen Morris, 2017. "First‐Price Auctions With General Information Structures: Implications for Bidding and Revenue," Econometrica, Econometric Society, vol. 85, pages 107-143, January.
    8. Dirk Bergemann & Stephen Morris, 2012. "Robust Mechanism Design," World Scientific Book Chapters, in: Robust Mechanism Design The Role of Private Information and Higher Order Beliefs, chapter 2, pages 49-96, World Scientific Publishing Co. Pte. Ltd..
    9. Songzi Du, 2018. "Robust Mechanisms Under Common Valuation," Econometrica, Econometric Society, vol. 86(5), pages 1569-1588, September.
    10. Alex Suzdaltsev, 2020. "An Optimal Distributionally Robust Auction," Papers 2006.05192, arXiv.org, revised Aug 2020.
    11. Dirk Bergemann & Karl Schlag, 2012. "Robust Monopoly Pricing," World Scientific Book Chapters, in: Robust Mechanism Design The Role of Private Information and Higher Order Beliefs, chapter 13, pages 417-441, World Scientific Publishing Co. Pte. Ltd..
    12. Dirk Bergemann & Karl H. Schlag, 2012. "Pricing Without Priors," World Scientific Book Chapters, in: Robust Mechanism Design The Role of Private Information and Higher Order Beliefs, chapter 12, pages 405-415, World Scientific Publishing Co. Pte. Ltd..
    13. Bodoh-Creed, Aaron L., 2012. "Ambiguous beliefs and mechanism design," Games and Economic Behavior, Elsevier, vol. 75(2), pages 518-537.
    14. Carrasco, Vinicius & Farinha Luz, Vitor & Kos, Nenad & Messner, Matthias & Monteiro, Paulo & Moreira, Humberto, 2018. "Optimal selling mechanisms under moment conditions," Journal of Economic Theory, Elsevier, vol. 177(C), pages 245-279.
    15. Chen, Yi-Chun & Li, Jiangtao, 2018. "Revisiting the foundations of dominant-strategy mechanisms," Journal of Economic Theory, Elsevier, vol. 178(C), pages 294-317.
    16. Wanchang Zhang, 2021. "Correlation-Robust Optimal Auctions," Papers 2105.04697, arXiv.org, revised May 2022.
    17. Gabriel Carroll, 2017. "Robustness and Separation in Multidimensional Screening," Econometrica, Econometric Society, vol. 85, pages 453-488, March.
    18. Carroll, Gabriel, 2016. "Informationally robust trade and limits to contagion," Journal of Economic Theory, Elsevier, vol. 166(C), pages 334-361.
    19. Takuro Yamashita & Shuguang Zhu, 2022. "On the Foundations of Ex Post Incentive-Compatible Mechanisms," American Economic Journal: Microeconomics, American Economic Association, vol. 14(4), pages 494-514, November.
    20. Ethan Che, 2019. "Distributionally Robust Optimal Auction Design under Mean Constraints," Papers 1911.07103, arXiv.org, revised Feb 2022.
    21. Gabriel Carroll, 2019. "Robustness in Mechanism Design and Contracting," Annual Review of Economics, Annual Reviews, vol. 11(1), pages 139-166, August.
    22. Wolitzky, Alexander, 2016. "Mechanism design with maxmin agents: theory and an application to bilateral trade," Theoretical Economics, Econometric Society, vol. 11(3), September.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Wanchang Zhang, 2022. "Robust Private Supply of a Public Good," Papers 2201.00923, arXiv.org, revised Jan 2022.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. He, Wei & Li, Jiangtao, 2022. "Correlation-robust auction design," Journal of Economic Theory, Elsevier, vol. 200(C).
    2. Suzdaltsev, Alex, 2022. "Distributionally robust pricing in independent private value auctions," Journal of Economic Theory, Elsevier, vol. 206(C).
    3. NAKADA, Satoshi & NITZAN, Shmuel & UI, Takashi & 宇井, 貴志, 2017. "Robust Voting under Uncertainty," Discussion paper series HIAS-E-60, Hitotsubashi Institute for Advanced Study, Hitotsubashi University.
    4. Wanchang Zhang, 2022. "Robust Private Supply of a Public Good," Papers 2201.00923, arXiv.org, revised Jan 2022.
    5. Tang, Rui & Zhang, Mu, 2021. "Maxmin implementation," Journal of Economic Theory, Elsevier, vol. 194(C).
    6. Yeon-Koo Che & Weijie Zhong, 2021. "Robustly Optimal Mechanisms for Selling Multiple Goods," Papers 2105.02828, arXiv.org, revised Aug 2024.
    7. Wanchang Zhang, 2022. "Auctioning Multiple Goods without Priors," Papers 2204.13726, arXiv.org.
    8. Zhaolin Li & Samuel N. Kirshner, 2021. "Salesforce Compensation and Two‐Sided Ambiguity: Robust Moral Hazard with Moment Information," Production and Operations Management, Production and Operations Management Society, vol. 30(9), pages 2944-2961, September.
    9. Wanchang Zhang, 2021. "Correlation-Robust Optimal Auctions," Papers 2105.04697, arXiv.org, revised May 2022.
    10. Ju Hu & Xi Weng, 2021. "Robust persuasion of a privately informed receiver," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 72(3), pages 909-953, October.
    11. Giuseppe Lopomo & Luca Rigotti & Chris Shannon, 2021. "Uncertainty in Mechanism Design," Papers 2108.12633, arXiv.org.
    12. Wei He & Jiangtao Li & Weijie Zhong, 2024. "Rank-Guaranteed Auctions," Papers 2408.12001, arXiv.org.
    13. Gretschko, Vitali & Mass, Helene, 2024. "Worst-case equilibria in first-price auctions," Theoretical Economics, Econometric Society, vol. 19(1), January.
    14. Ethan Che, 2019. "Distributionally Robust Optimal Auction Design under Mean Constraints," Papers 1911.07103, arXiv.org, revised Feb 2022.
    15. Shixin Wang, 2024. "Semi-Separable Mechanisms in Multi-Item Robust Screening," Papers 2408.13580, arXiv.org.
    16. Pham, Hien & Yamashita, Takuro, 2024. "Auction design with heterogeneous priors," Games and Economic Behavior, Elsevier, vol. 145(C), pages 413-425.
    17. Vinicius Carrasco & Vitor Farinha Luz & Paulo K. Monteiro & Humberto Moreira, 2019. "Robust mechanisms: the curvature case," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 68(1), pages 203-222, July.
    18. Rosenthal, Maxwell, 2023. "Robust incentives for risk," Journal of Mathematical Economics, Elsevier, vol. 109(C).
    19. Benjamin Brooks & Songzi Du, 2021. "Optimal Auction Design With Common Values: An Informationally Robust Approach," Econometrica, Econometric Society, vol. 89(3), pages 1313-1360, May.
    20. Amine Allouah & Omar Besbes, 2020. "Prior-Independent Optimal Auctions," Management Science, INFORMS, vol. 66(10), pages 4417-4432, October.

    More about this item

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:arx:papers:2105.05427. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: arXiv administrators (email available below). General contact details of provider: http://arxiv.org/ .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.