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Double Auction Dynamics: Structural Effects of Non-binding Price Controls

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  • Dhananjay K.
  • Shyam Sunder

Abstract

In competitive equilibrium, non-binding price controls (that is, price floors below and ceilings above the equilibrium) should not affect market outcomes, but in laboratory experiments they do. We build a simple dynamic model of double auction markets with zero-intelligence (ZI) computer traders that accounts for many, though not all, of the discrepancies between the data and the Walrasian tatonnement predictions. The success of the model in organizing the data, and in isolating various consequences of price controls, shows that the simple ZI model is a powerful tool to gain insights into the dynamics of market institutions.

Suggested Citation

  • Dhananjay K. & Shyam Sunder, 2004. "Double Auction Dynamics: Structural Effects of Non-binding Price Controls," Yale School of Management Working Papers ysm141, Yale School of Management, revised 01 Apr 2008.
    • Handle: RePEc:ysm:somwrk:ysm141
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    File URL: http://icfpub.som.yale.edu/publications/2539
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    References listed on IDEAS

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    Cited by:

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    2. Giuseppe Attanasi & Samuele Centorrino & Elena Manzoni, 2021. "Zero‐intelligence versus human agents: An experimental analysis of the efficiency of Double Auctions and Over‐the‐Counter markets of varying sizes," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 23(5), pages 895-932, October.
    3. Shyam Sunder & MODELS A, 2002. "Markets as Artifacts: Aggregate Efficiency from Zero-Intelligence Traders," Yale School of Management Working Papers ysm284, Yale School of Management, revised 01 Sep 2004.
    4. Ralph Bradburd & Stephen Sheppard & Joseph Bergeron & Eric Engler, 2006. "The Impact Of Rent Controls In Non‐Walrasian Markets: An Agent‐Based Modeling Approach," Journal of Regional Science, Wiley Blackwell, vol. 46(3), pages 455-491, August.
    5. Friesen, Lana & Gangadharan, Lata & Khezr, Peyman & MacKenzie, Ian A., 2022. "Mind your Ps and Qs! Variable allowance supply in the US Regional Greenhouse Gas Initiative," Journal of Environmental Economics and Management, Elsevier, vol. 112(C).
    6. Micola, Augusto Ruperez & Bunn, Derek W., 2008. "Crossholdings, concentration and information in capacity-constrained sealed bid-offer auctions," Journal of Economic Behavior & Organization, Elsevier, vol. 66(3-4), pages 748-766, June.
    7. Duffy, John, 2006. "Agent-Based Models and Human Subject Experiments," Handbook of Computational Economics, in: Leigh Tesfatsion & Kenneth L. Judd (ed.), Handbook of Computational Economics, edition 1, volume 2, chapter 19, pages 949-1011, Elsevier.
    8. Marco LiCalzi & Lucia Milone & Paolo Pellizzari, 2011. "Allocative Efficiency and Traders’ Protection Under Zero Intelligence Behavior," Dynamic Modeling and Econometrics in Economics and Finance, in: Herbert Dawid & Willi Semmler (ed.), Computational Methods in Economic Dynamics, pages 5-28, Springer.
    9. Ross M. Miller, 2012. "The Effect Of Boundary Conditions On Efficiency And Pricing In Double‐Auction Markets With Zero‐Intelligence Agents," Intelligent Systems in Accounting, Finance and Management, John Wiley & Sons, Ltd., vol. 19(3), pages 179-188, July.
    10. Giuseppe Attanasi & Samuele Centorrino & Elena Manzoni, 2020. "Zero-Intelligence vs. Human Agents: An Experimental Analysis of the Efficiency of Double Auctions and Over-the-Counter Markets of Varying Sizes," Working Papers 05/2020, University of Verona, Department of Economics.
    11. Lana Friesen & Lata Gangadharan & Peyman Khezr & Ian A. MacKenzie, 2020. "Mind your Ps and Qs! An Experiment on Variable Allowance Supply in the US Regional Greenhouse Gas Initiative," Discussion Papers Series 618, School of Economics, University of Queensland, Australia.
    12. Shyam Sunder, 2020. "Rational order from ‘irrational’ actions," Mind & Society: Cognitive Studies in Economics and Social Sciences, Springer;Fondazione Rosselli, vol. 19(2), pages 317-321, November.
    13. Paul Brewer & Maria Huang & Brad Nelson & Charles Plott, 2002. "On the Behavioral Foundations of the Law of Supply and Demand: Human Convergence and Robot Randomness," Experimental Economics, Springer;Economic Science Association, vol. 5(3), pages 179-208, December.

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    More about this item

    Keywords

    Price controls; zero-intelligence; double auction dynamics; allocative efficiency;
    All these keywords.

    JEL classification:

    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions
    • D61 - Microeconomics - - Welfare Economics - - - Allocative Efficiency; Cost-Benefit Analysis

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