Internet Trading Mechanisms And Rational Expectations

This paper studies an internet trading mechanism similar to the one described in Peters and Severinov (2001) in a market where traders values are interdependent. It is shown that under reasonable conditions this mechanism has a perfect Bayesian equilibrium which supports allocations that converge to rational expectations equilibrium allocations. In particular, this equilibrium supports allocations that are ex post efficient. We show how to construct the rational expectations equilibrium from the market outcome. The mechanism is also compared to a double auction