Thus, it seems likely that if the concept of the competitive equilibrium is to be useful in economic analysis, we need a mechanism for explaining how agents in the economy might learn what the competitive prices are. In their approach, they analyzed a partial equilibrium situation involving a single market with many interacting agents, based on the standard double auction supply and demand experiments pioneered by Vernon Smith and Charlie Plott. In the experimental version of this market, one group of agents play the role of buyers, the other the role of sellers. Buyers can purchase one unit of the good, and this one unit is worth a given reservation price to them. Hence, if they buy the good for a price at or below their reservation value, they earn a profit.
Sellers can each sell up to one unit of the good.
If they sell their unit, they incur a given production cost. Hence, if they sell at a price at or above their cost, they make a profit. However, that agents in this experiment generally require several rounds of trading before they learn what the relevant equilibrium prices are, so that the data generated in such experiments exhibits a convergence of prices and quantities to the predicated competitive equilibrium prices and quantities, rather than an abrupt and direct implementation of the equilibrium. In the current project, we shall try to push the boundaries to find out how far such results can be generalized to other market environments.