Competitive market experiments are a valuable demonstration of one of the key results from the microeconomics curriculum. In a market with many sellers and many buyers, the competitive pressures among sellers and among buyers lead to a stable market price and to an efficient allocation of the commodity.

In the competitive market model, there are many buyers whose aggregate demand is q_D = D(p). There are also many sellers whose aggregate supply is q_S = S(p). In the most common case, demand decreases as price increases and supply increases as the price increases. Under these assumptions, if the demand exceeds the supply when the price is zero, then there is a unique price p* where the demand and supply are equal. The equation for this is that D(p*) = S(p*).

Figure 1 shows the supply (S), the demand (D), the competitive equilibrium price p*, and the competitive equilibrium quantity of trade q* for a sample market. MarketLink experiments that test the competitive equilibrium predictions have been prepared for both the double auction and the posted offer auction.

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