Trader matching and the selection of market institutions

Carlos Alós-Ferrer, Johannes Buckenmaier

Research output: Contribution to journalArticle

Abstract

We analyze a stochastic dynamic learning model with boundedly rational traders who can choose among trading institutions with different matching characteristics. The framework allows for institutions featuring multiple prices (per good), thus violating the “law of one price.” We find that centralized institutions are stochastically stable for a broad class of dynamics and behavioral rules, independently of which other institutions are available. However, some decentralized institutions featuring multiple prices can also survive in the long run, depending on specific characteristics of the underlying learning dynamics such as fast transitions or optimistic behavior.

Original languageEnglish (US)
Pages (from-to)118-127
Number of pages10
JournalJournal of Mathematical Economics
Volume69
DOIs
StatePublished - Mar 1 2017

Keywords

  • Law of one price
  • Market institution
  • Matching
  • Stochastic stability

ASJC Scopus subject areas

  • Economics and Econometrics
  • Applied Mathematics

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