Optimal trading mechanisms with ex ante unidentified traders

We analyze optimal trading mechanisms in an exchange economy where each tra der owns some units of a good to be traded and may be either a seller or a buyer. depending on the realization of the privately observed valuations. T he concept of virtual valuation is extended to ex ante unidentified traders . The traders' virtual valuations now depend on the: choice of the trading mechanism and are generally nonmonutonic. We show that the trading mechanis ms that maximize a broker's expected profit or expected total gains from tr ade are generalized double auctions which maximize the gains from trade mea sured in some modified monotonic virtual valuations for the traders. The bu nching phenomena will be a general feature in these mechanisms. We also sho w that the optimal mechanisms converge towards simple bid-ask price mechani sms as the number of participants in the market increases. (C) 2001 Academi c Press.