A Walrasian auction, introduced by
Léon Walras
Marie-Esprit-Léon Walras (; 16 December 1834 – 5 January 1910) was a French mathematical economist and Georgist. He formulated the marginal theory of value (independently of William Stanley Jevons and Carl Menger) and pioneered the developmen ...
, is a type of simultaneous
auction
An auction is usually a process of buying and selling goods or services by offering them up for bids, taking bids, and then selling the item to the highest bidder or buying the item from the lowest bidder. Some exceptions to this definition ex ...
where each
agent
Agent may refer to:
Espionage, investigation, and law
*, spies or intelligence officers
* Law of agency, laws involving a person authorized to act on behalf of another
** Agent of record, a person with a contractual agreement with an insuranc ...
calculates its demand for the good at every possible price and submits this to an auctioneer. The price is then set so that the total demand across all agents equals the total amount of the good. Thus, a Walrasian auction perfectly matches the supply and the demand.
Walras suggested that
equilibrium would always be achieved through a process of
tâtonnement (French for "trial and error"), a form of
hill climbing
numerical analysis, hill climbing is a mathematical optimization technique which belongs to the family of local search. It is an iterative algorithm that starts with an arbitrary solution to a problem, then attempts to find a better solution ...
. More recently, however, the
Sonnenschein–Mantel–Debreu theorem
The Sonnenschein–Mantel–Debreu theorem is an important result in general equilibrium economics, proved by Gérard Debreu, , and Hugo F. Sonnenschein in the 1970s. It states that the excess demand curve for an exchange economy populated with ...
proved that such a process would not necessarily reach a unique and stable equilibrium, even if the market is populated with perfectly
rational agents
A rational agent or rational being is a person or entity that always aims to perform optimal actions based on given premises and information. A rational agent can be anything that makes decisions, typically a person, firm, machine, or software. ...
.
Walrasian auctioneer
The ''Walrasian auctioneer'' is the presumed auctioneer that matches
supply and demand
In microeconomics, supply and demand is an economic model of price determination in a Market (economics), market. It postulates that, Ceteris paribus, holding all else equal, in a perfect competition, competitive market, the unit price for a ...
in a market of
perfect competition
In economics, specifically general equilibrium theory, a perfect market, also known as an atomistic market, is defined by several idealizing conditions, collectively called perfect competition, or atomistic competition. In Economic model, theoret ...
. The auctioneer provides for the features of perfect competition:
perfect information
In economics, perfect information (sometimes referred to as "no hidden information") is a feature of perfect competition. With perfect information in a market, all consumers and producers have complete and instantaneous knowledge of all market pr ...
and no
transaction cost
In economics and related disciplines, a transaction cost is a cost in making any economic trade when participating in a market. Oliver E. Williamson defines transaction costs as the costs of running an economic system of companies, and unlike produ ...
s. The process is called ''tâtonnement'', or ''groping'', relating to finding the market clearing price for all commodities and giving rise to
general equilibrium
In economics, general equilibrium theory attempts to explain the behavior of supply, demand, and prices in a whole economy with several or many interacting markets, by seeking to prove that the interaction of demand and supply will result in an ov ...
.
The device is an attempt to avoid one of deepest conceptual problems of perfect competition, which may, essentially, be defined by the stipulation that no agent can affect prices. But if no one can affect prices no one can change them, so prices cannot change. However, involving as it does an artificial solution, the device is less than entirely satisfactory.
As a mistranslation
Until Walker and van Daal's 2014 translation (retitled ''Elements of Theoretical Economics''), William Jaffé's ''Elements of Pure Economics'' (1954) was for many years the only English translation of Walras's ''Éléments d’économie politique pure''.
Walker and van Daal argue that the idea of the Walrasian auction and Walrasian auctioneer resulted from Jaffé's mistranslation of the French word ''crieurs'' (criers) into ''auctioneers''. Walker and van Daal call this "a momentous error that has misled generations of readers into thinking that the markets in Walras's model are auction markets and that he assigned the function of changing prices in his model to an auctioneer."
See also
*
Double auction
A double auction is a process of buying and selling goods with multiple sellers and multiple buyers. Potential buyers submit their bids and potential sellers submit their ask prices to the market institution, and then the market institution choose ...
*
Walras' law
Walras's law is a principle in general equilibrium theory asserting that budget constraints imply that the ''values'' of excess demand (or, conversely, excess market supplies) must sum to zero regardless of whether the prices are general equilib ...
*
Fisher market Fisher market is an economic model attributed to Irving Fisher. It has the following ingredients:
* A set of m divisible products with pre-specified supplies (usually normalized such that the supply of each good is 1).
* A set of n buyers.
* For ea ...
- a different market model.
*
Arrow-Debreu market - yet another market model.
References
Bibliography
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{{Authority control
Types of auction
Wholesale markets
General equilibrium theory
Mathematical optimization