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

43 Pages Posted: 3 Jun 2003

See all articles by Shyam Sunder

Shyam Sunder

Yale University - School of Management; Yale University - Cowles Foundation

Dhananjay (Dan) K. Gode

New York University (NYU) - Department of Accounting

Multiple version iconThere are 2 versions of this paper

Date Written: May 2003

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.

Keywords: Price Controls, Zero-Intelligence, Double Auction Dynamics, Allocative Efficiency

JEL Classification: D44, D61

Suggested Citation

Sunder, Shyam and Gode, Dhananjay (Dan) K., Double Auction Dynamics: Structural Effects of Non-Binding Price Controls (May 2003). Yale ICF Working Paper No. 00-17, Available at SSRN: https://ssrn.com/abstract=219068

Shyam Sunder

Yale University - School of Management ( email )

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HOME PAGE: http://www.som.yale.edu/faculty/sunder/

Yale University - Cowles Foundation ( email )

Box 208281
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Dhananjay (Dan) K. Gode (Contact Author)

New York University (NYU) - Department of Accounting ( email )

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New York, NY 10012
United States
212-998-0021 (Phone)
212-995-4004 (Fax)

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