I have been reading a paper on energy markets and I have stumbled upon double markets and clearing prices, which got me quite confused (bare in mind, I am relatively new to this topic). Quote from the work (Chapter 3, C):
The order book market design is implemented via a double auction market with discrete market closing times that results in a single clearing price in every trading period. .... The lowest bid price that can still be served given the aggregated supply determines the market clearing price.
The way I understand this model is that there will be only 1 price, which every buyer is going to purchase the product for. For example:
- Buyer 1: bid price = 30 cent
- Buyer 2: bid price = 25 cent
- Buyer 3: bid price = 20 cent
- Buyer 4: bid price = 15 cent
And the ask prices of the sellers per item:
- Seller 1: ask price = 25 cent
- Seller 2: ask price = 20 cent
From what I understand is, that there would be just one clearing price and Buyers 1 and 2 will both purchase an item from Seller 1 and 2 for 20 cent, instead of 30 and 25 cent. Have I understood the concept of the double auction correctly, or will Buyers 1 and 2 purchase their items for 30 and 25 cent from the respective sellers?