Tâtonnement process
The tâtonnement process [ tɑtɔnˈmɑ̃ ] ( French for »tentative experiment«, »approaching«) describes the interpretation of the market mechanism as an auction process according to Léon Walras .
It is assumed that there is an auctioneer , the Walras auctioneer ( invisible hand ), who initially announces any prices for goods and factors and to whom the quantities offered and requested by consumers and companies at these prices are communicated. If supply and demand do not match, the auctioneer changes the prices until there is a market equilibrium .
Procedure of the auctioneer:
- Excess demand: raise the price
- Excess supply: lower the price
The auctioneer probes the equilibrium price through trial and error . Only then does the exchange take place.
The basic assumptions of the Walras model are:
- There is complete competition .
- Consumers behave in a utility-maximizing manner (rational).
- It can only be traded at equilibrium prices.
- Utility and production functions are continuous (with discrete quantities and prices there is a risk that no exact equilibrium exists).
The tâtonnement process does not provide a real explanation of how the "invisible hand" of the market works, if only because in reality there is no (central) auctioneer.