Walrasian Auction - Walrasian Auctioneer

The Walrasian auctioneer is the presumed auctioneer that matches supply and demand in a market of perfect competition. The auctioneer provides for the features of perfect competition: perfect information and no transaction costs. The process is called tâtonnement, or groping, relating to finding the market clearing price for all commodities and giving rise to general equilibrium.

In Walrasian auction, market clearing price is determined by setting the total demand across all agents equal to the total amount of the good. The tatonnement process is a model for investigating stability of equilibria. Prices are announced (perhaps by an "auctioneer"), and agents state how much of each good they would like to offer (Supply) or purchase (demand). No transactions and no production take place at Disequilibrium prices. Instead, prices are lowered for goods with positive prices and excess supply. Prices are raised for goods with excess demand. The question for the mathematician is under what conditions such a process will terminate in equilibrium in which demand equates to supply for goods with positive prices and demand does not exceed supply for goods with a price of zero. Walras was not able to provide a definitive answer to this question.

The device is an attempt to avoid one of deepest conceptual problems of perfect competition, which may, essentially, be defined by the stipulating 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 some deus ex machina, the device is less than entirely satisfactory.