TY - JOUR
T1 - Trader matching and the selection of market institutions
AU - Alós-Ferrer, Carlos
AU - Buckenmaier, Johannes
N1 - Funding Information:
We are grateful to Christoph Kuzmics, Jonathan Newton, three anonymous referees, and seminar participants at the 13th SAET Conference in Paris, the Workshop “Evolutionary Dynamics and Market Behavior” at the Hausdorff Research Institute for Mathematics (Bonn), and the Cologne-Zurich Workshop on Market Design in Cologne for helpful comments and suggestions. Financial support from the German Research Foundation (DFG) through project AL-1169/5 is gratefully acknowledged.
Publisher Copyright:
© 2017 Elsevier B.V.
PY - 2017/3/1
Y1 - 2017/3/1
N2 - 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.
AB - 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.
KW - Law of one price
KW - Market institution
KW - Matching
KW - Stochastic stability
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U2 - 10.1016/j.jmateco.2017.02.001
DO - 10.1016/j.jmateco.2017.02.001
M3 - Article
AN - SCOPUS:85013626233
SN - 0304-4068
VL - 69
SP - 118
EP - 127
JO - Journal of Mathematical Economics
JF - Journal of Mathematical Economics
ER -