Within a market the reservation value that a trader places on the good being traded may be private, known to him alone. This privacy enables him when he makes a bid or an offer to misreport strategically his true value. In small markets, because of this strategic misreporting, trading mechanisms implement inefficient allocations at least part of the time. In large markets this inefficiency vanishes because each trader is negligible and can not manipulate the price effectively. This project identifies and verifies fundamental conjectures about the characteristics of markets. One such conjecture is that under general conditions doubling the number of traders (1) halves the maximal amount by which traders misreport their reservation values and (2) quarters the mechanism inefficiency. Another conjecture is that no equilibrium of a sealed bid double auction has ex ante efficient performance, no matter how many traders there are. The project also compares the performance of structured markets such as double auctions with decentralized exchanges. The results of this study should improve our understanding of the advantages of organized markets and the reason why such institutions developed.
