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A multi-unit auction environment similar to Ebay is studied. Sellers who wish to sell a single unit of a homogenous good set reserve prices for their own independently run auctions. Buyers who hope to acquire a single unit bid as often as they like in a dynamic second price auction. When the number of buyers and sellers is large but finite, there is a Bayesian equilibrium for this completely decentalized trading procedure in which the ex post efficient set of trades occurs at a uniform trading price. Remarkably, the strategy rules that buyers and sellers use in this equilibrium are very simple. They do not depend in any way on beliefs, or on the number of buyers and sellers.

A multi-unit auction environment similar to Ebay is studied. Sellers who wish to sell a single unit of a homogenous good set reserve prices for their own independently run auctions. Buyers who hope to acquire a single unit bid as often as they like in a dynamic second price auction. When the number of buyers and sellers is large but finite, there is a Bayesian equilibrium for this completely decentalized trading procedure in which the ex post efficient set of trades occurs at a uniform trading price. Remarkably, the strategy rules that buyers and sellers use in this equilibrium are very simple. They do not depend in any way on beliefs, or on the number of buyers and sellers. (1985), are known to be incentive efficient. Rustichini, Satterthwaite, and Williams (1994) (following previous work by Satterthwaite and Williams (1089)) show that surplus lost by trading in centralized double auctions shrinks to zero very quickly as the number of traders gets large. Older experimental work by, for example, (Smith ( 1962)) seems to confirm these theoretical predictions.At first glance, the trading technology offered by the internet appears to enhance this trend toward centralization since computers make it easier to assemble and process large amounts of information. Large trading institutions such as Ebay,Ubid, and other business-to-business exchanges have emerged, 3 and are growing quickly. For example, Ebay had 18.9 million registered users as of April 2001. Total sales volume at Ebay in 2000 was $ 5 bln. and this number is expected at least to double in 2001 (see Morneau (2001)).The volume of trade at business-to-business marketplaces has grown from $5 bln. in 1999, to $43 bln. in 2000 and, according to ActivMedia Research, is expected to reach $263 bln. in 2001 (see Wilson and Mullen (2000), Morneau ( 2001)).On closer inspection, the notion that electronic trade promotes centralization of trade is less convincing. Though Ebay certainly presents a focal location for trade, Ebay itself does not do the processing of demand and supply information that occurs in a double auction, or in the single auctioneer mechanisms of Gul and Stacchetti (2000), orAusubel (2000). It is up to sellers to choose their own reserve prices and buyers to decide where to submit bids. Experienced traders apparently buy and sell in many locations. For example, it is possible to buy computers on Ebay, but they can also be purchased on line at suppliers own websites and at a variety of on line retail locations. Suppliers who do try to sell on Ebay, typically also offer their computers on other on line trading sites like Amazon, or Ubid.The same technology that makes it possible to process large volumes of information also promotes decentralized trade because it makes it possible for individual traders to collect dispersed information about prices and availability and react to it. For example, one could easily imagine that the robot guided bidding on Ebay could be carried out on a host or small private servers (owned by sellers) which simply enforced th...