A Walrasian auction, introduced by
Léon Walras
Marie-Esprit-Léon Walras (; 16 December 1834 – 5 January 1910) was a French mathematical economics, mathematical economist and Georgist. He formulated the Marginalism, marginal theory of value (independently of William Stanley Jevons and Carl ...
, is a type of simultaneous
auction
An auction is usually a process of Trade, buying and selling Good (economics), goods or Service (economics), services by offering them up for Bidding, bids, taking bids, and then selling the item to the highest bidder or buying the item from th ...
where each
agent 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 "groping"), 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 soluti ...
. In the 1970s, 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
Rationality is the quality of being guided by or based on reason. In this regard, a person acts rationally if they have a good reason for what they do, or a belief is rational if it is based on strong evidence. This quality can apply to an a ...
.
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#Applications, holding all else equal, the unit price for a particular Good (economics), good ...
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
Perfect information is a concept in game theory and economics that describes a situation where all players in a game or all participants in a market have knowledge of all relevant information in the system. This is different than complete informat ...
and no
transaction cost
In economics, a transaction cost is a cost incurred when making an economic trade when participating in a market.
The idea that transactions form the basis of economic thinking was introduced by the institutional economist John R. Commons in 1 ...
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 choos ...
*
Walras' law
*
Fisher market - a different market model.
*
Arrow-Debreu market - yet another market model.
References
Bibliography
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{{Authority control
Eponyms in economics
Types of auction
Wholesale markets
General equilibrium theory
Mathematical optimization