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The Endogenous Evolution of Market Institutions: An Experimental Investigation
Kirchsteiger,G. Niederle,M. Potters,J.J.M.
Kirchsteiger,G.
Niederle,M.
Potters,J.J.M.
Abstract
We study an experimental market in which the structure of the information flows is endogenized. When making an offer, traders choose not only the price at which they are prepared to trade, but also the subset of traders they want to inform about the offer. This design allows for two extreme institutions as special cases. If traders always inform every other trader about each offer, the resulting institution is equivalent to a double auction. If, on the other hand, traders always inform only one other trader about each offer, the resulting institution is equivalent to a decentralized bargaining market. The institution that actually evolved in the experiments, however, was in between the two extreme cases. Subjects typically informed all traders of the other market side, but none of their own side. This endogenously evolving institution, however, turned out to have the same properties as the double auction.
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Date
1998
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Publisher
Microeconomics
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67.pdf
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Keywords
market institution, information structure, efficiency, C9 - Design of Experiments, D4 - Market Structure and Pricing, L1 - Market Structure, Firm Strategy, and Market Performance
Citation
Kirchsteiger, G, Niederle, M & Potters, J J M 1998 'The Endogenous Evolution of Market Institutions : An Experimental Investigation' CentER Discussion Paper, vol. 1998-67, Microeconomics, Tilburg.