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:

  • Buyers:
    • 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:

  • Sellers:
    • 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?


1 Answer 1


In your example, the market clearing price is $25$ as there are two buying bids at that price or higher and two selling bids at that price or lower, and no other price achieves this match

So Buyer $1$ and Buyer $2$ both pay $25$ and Seller $1$ and Seller $2$ both receive $25$

If you want actual examples, you could look at the shares of Tottenham Hotspur Limited (the football club) on Asset Match and the Auction results (almost every month) in the right hand column. The orders are shown cumulatively but it is easy enough to decipher the actual bids at each price. For example in June 2019 they looked like this

  Cumulative  Actual           Actual   Cumulative           
   wanted     wanted   Price   offered   offered
    11900         0     250p      875        875
    11900         0     260p      500       1375
    11900      7900     265p     9842      11217   
     4000      2500     270p    16314      27531 
     1500      1500     275p     1384      28915

The market clearing price was $265$ covering $11217$ shares as this is where the cumulative supply and demand curves cross. The successful trades included all those shares offered at $250$ and $260$ and $265$, and all those wanted at $275$ and $270$ plus $7217$ of the shares wanted at $265$. All successful transactions were settled at $265$, though the Assetmatch would have then charged a small fee for arranging the deals


Your Answer

By clicking “Post Your Answer”, you agree to our terms of service and acknowledge you have read our privacy policy.

Not the answer you're looking for? Browse other questions tagged or ask your own question.