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The B.E. Journal of Theoretical Economics

Editor-in-Chief: Schipper, Burkhard

Ed. by Cervellati, Matteo / Fong, Yuk-fai / Peeters, Ronald / Puzzello , Daniela / Rivas, Javier

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Market Research and Market Design

Sandeep Baliga1 / Rakesh Vohra2

1Northwestern University,

2Northwestern University,

Citation Information: Advances in Theoretical Economics. Volume 3, Issue 1, ISSN (Online) 1534-5963, DOI: 10.2202/1534-5963.1059, August 2003

Publication History:
Published Online:
2003-08-13

We study trading models when the distribution of signals such as costs or values is not known to traders or the mechanism designer when the profit-maximizing trading procedure is designed. We present adaptive mechanisms that simultaneously elicit this information (market research) while maintaining incentive compatibility and maximizing profits when the set of traders is large (market design). First, we study a monopoly pricing model where neither the seller nor the buyers know the distribution of values. Second, we study a model with a broker intermediating trade between a large number of buyers and sellers with private information about their valuations and costs. We show that when the set of traders becomes large our adaptive mechanisms achieve the same expected profits for the monopolist and the broker as when the distribution of signals is common knowledge.

Keywords: Market Design; Wilson Doctrine

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