French auction

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A French auction (or Tâtonnement or Walrasian auction) is a type of auction used for pricing gold, stocks and bonds.

Several vendors and several buyers announce their quantities and prices. In a matter of seconds a computer will calculate exactly what price level will result in a maximum quantity being traded. At the London Bullion Market the World Market Price for gold is settled at the “morning fix” at 10:30 and at the “afternoon fix” at 15:00.

For stocks and bonds at the large exchanges of the World, French auction is used primarily for the first morning transactions. Pricing is very accurate then, since many vendors and buyers have appeared during the night. Later in the day accuracy declines somewhat, since at each pricing point in time the numbers of vendors and buyers decline somewhat. The French professor Léon Walras (1834-1910) in 1874 described the calculation method used in a French auction.

For other types of auctions, see Auction.

Journal of Economic Literature, JEL, Classification System: D4 - Market Structure and Pricing. D44 - Auctions.

[edit] Further reading

Walras, Léon (1874). Elements of Pure Economics.

Milgrom, Paul (2004). Putting Auction Theory to Work, 384 pp. Cambridge University Press. ISBN 0-521-53672-3.