Double auctions with no-loss constrained traders


Do hard budget constraints work in favour or against truth telling in double auctions? McAfee (1992) constructed a simple double auction mechanism (MDA), which is strategyproof and minimally inefficient, but may resort to dual prices, where the difference between prices is channelled as a surplus to the market maker, preventing MDA from achieving a balanced budget. We construct a variant of MDA in which no-loss constraints play a major positive role. Our variant of MDA is also strategyproof, as efficient as MDA but improves on it by achieving a balanced budget via always having a uniform price.

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  1. 1.

    Matters get more complex with multiunit demands and supplies [as in Loertscher and Mezzetti (2014)] or with interdependent values [as in Kojima and Yamashita (2014)]. For an excellent survey on the design of two-sided markets, see Loertscher et al. (2015).

  2. 2.

    We are thankful to Preston McAfee for sharing this observation with us. As in a world with NLC traders, MDA maintains all its properties, it follows that in such a world our mechanism is more efficient than MDA in ex-ante sense if welfare is utilitarian. However, as explained in Sect. 4, our mechanism ceases to be strategyproof in a world where traders are not NLC.

  3. 3.

    As pointed out by a referee, there are many implementations in experiments of private-values markets in which bidding above value or below cost was ruled out by the decision interface.

  4. 4.

    We thank an anonymous referee for suggesting this to us.


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Corresponding author

Correspondence to Jaideep Roy.

Additional information

We thank Sandro Brusco, Nick Feltovich, Takashi Kunimoto, Simon Loertscher, Preston McAfee, Arunava Sen, Steven Williams and two anonymous referees for useful comments and suggestions.

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Anbarci, N., Roy, J. Double auctions with no-loss constrained traders. Theory Decis 84, 1–9 (2018).

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  • No-loss constraint (NLC)
  • Double auctions (DA)
  • Uniform price
  • Efficiency
  • Balanced budget
  • Sunspots