Foundations of Double Auctions from theory and practice

Double Auctions are among the most widespread mechanisms that clear demand and supply, notably on stock exchanges. We provide their first unified definition that applies to finite and infinite markets. Our framework nests earlier models and allows us to formalize the Reference-Price Double Auction used on stock exchanges. In contrast to prior work, our definition does not rely on regularity assumptions and allows arbitrary ties and gaps in reported values. We axiomatize Double Auctions and prominent pricing rules, and provide necessary and sufficient conditions on beliefs under which Double Auctions are asymptotically incentive-compatible.