The Endogenous Evolution of Market Institutions an Experimental Investigation

CentER Discussion Paper Series No. 67

23 Pages Posted: 16 Nov 1998

See all articles by Georg Kirchsteiger

Georg Kirchsteiger

Université Libre de Bruxelles (ULB) - European Center for Advanced Research in Economics and Statistics (ECARES); CESifo (Center for Economic Studies and Ifo Institute)

Muriel Niederle

Stanford University - Department of Economics; National Bureau of Economic Research (NBER)

Johannes (Jan) J. M. Potters

Tilburg University - CentER

Date Written: June 1998

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.

JEL Classification: C9, D4, L1

Suggested Citation

Kirchsteiger, Georg and Niederle, Muriel and Potters, Johannes (Jan) J. M., The Endogenous Evolution of Market Institutions an Experimental Investigation (June 1998). CentER Discussion Paper Series No. 67. Available at SSRN: https://ssrn.com/abstract=138129 or http://dx.doi.org/10.2139/ssrn.138129

Georg Kirchsteiger (Contact Author)

Université Libre de Bruxelles (ULB) - European Center for Advanced Research in Economics and Statistics (ECARES) ( email )

Av. F. D. Roosevelt 50
CP 114
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Belgium

HOME PAGE: http://www.ecares.org/people/members/kirchsteiger/kirchsteiger/home.htm

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

Muriel Niederle

Stanford University - Department of Economics ( email )

Landau Economics Building
579 Serra Mall
Stanford, CA 94305-6072
United States

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Johannes (Jan) J. M. Potters

Tilburg University - CentER ( email )

Department of Economics
P.O. Box 90153
5000 LE Tilburg
Netherlands
+31 13 466 8204 (Phone)
+31 13 466 3042 (Fax)

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