The Endogenous Evolution of Market Institutions

An Experimental Investigation

G. Kirchsteiger, M. Niederle, J.J.M. Potters

Research output: Working paperDiscussion paperOther research output

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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.
Original languageEnglish
Place of PublicationTilburg
PublisherMicroeconomics
Volume1998-67
Publication statusPublished - 1998

Publication series

NameCentER Discussion Paper
Volume1998-67

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Traders
Double auction
Information flow
Experimental markets
Experiment

Keywords

  • market institution
  • information structure
  • efficiency

Cite this

Kirchsteiger, G., Niederle, M., & Potters, J. J. M. (1998). The Endogenous Evolution of Market Institutions: An Experimental Investigation. (CentER Discussion Paper; Vol. 1998-67). Tilburg: Microeconomics.
Kirchsteiger, G. ; Niederle, M. ; Potters, J.J.M. / The Endogenous Evolution of Market Institutions : An Experimental Investigation. Tilburg : Microeconomics, 1998. (CentER Discussion Paper).
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Kirchsteiger, G, Niederle, M & Potters, JJM 1998 'The Endogenous Evolution of Market Institutions: An Experimental Investigation' CentER Discussion Paper, vol. 1998-67, Microeconomics, Tilburg.

The Endogenous Evolution of Market Institutions : An Experimental Investigation. / Kirchsteiger, G.; Niederle, M.; Potters, J.J.M.

Tilburg : Microeconomics, 1998. (CentER Discussion Paper; Vol. 1998-67).

Research output: Working paperDiscussion paperOther research output

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Kirchsteiger G, Niederle M, Potters JJM. The Endogenous Evolution of Market Institutions: An Experimental Investigation. Tilburg: Microeconomics. 1998. (CentER Discussion Paper).