Experimental Market Mechanism Design for Double Auction ⋆ Masabumi Furuhata 1,2 , Laurent Perrussel 2 , Jean-Marc Th´ evenin 2 , and Dongmo Zhang 1 1 Intelligent Systems Laboratory, University of Western Sydney, Australia 2 IRIT, Universit´ e de Toulouse, France Abstract. In this paper, we introduce an experimental approach to the design, analysis and implementation of market mechanisms based on double auction. We define a formal market model that specifies the market policies in a double auc- tion market. Based on this model, we introduce a set of criteria for the evaluation of market mechanisms. We design and implement a set of market policies and test them with different experimental settings. The results of experiments pro- vide us a better understanding of the interrelationship among market policies and also show that an experimental approach can greatly improve the efficiency and effectiveness of market mechanism design. 1 Introduction Auction has been used for many years as the major trading mechanism for financial markets and electronic markets. The existing researches on auction mostly focus on the theoretical aspects of a market mechanism, such as incentive comparability, profit optimization, price formation, and so on [1–4]. From the implementation and market design point of view, “market participants and policy makers would like to know which institution or variant or combination is most efficient, but theoretical and empirical work to date provides little guidance”, as Friedman pointed out in [5]. In this paper, we introduce a general approach for the design, analysis, and testing of market mechanisms. The design of a market mechanism involves the development of market policies and evaluation criteria. Different from most existing work in experi- mental economics, we do not restrict ourselves on specific market policies. Rather, we specify a range of general market policies under the certain trading structure, such as double auction, investigate the properties of market mechanisms with different combi- nations of market policies. In such a way, we can design a variety of market mechanisms and test them for different purposes. This paper is organised as follows. Section 2 introduces a market model and spec- ifies the market policies that compose a market mechanism. Section 3 presents a set of evaluation criteria for market mechanism design and testing. Section 4 describes the implementation of market policies. Section 5 presents our experimental results. Finally, we conclude the paper with related work. ⋆ This research was partially supported by the Australian Research Council through Discovery Project DP0988750 and UWS Research Grants Scheme. We thank the anonymous reviewers for their constructive comments.