Information Aggregation and Innovation in Market Design

Posted: 24 Nov 2011 Last revised: 18 Dec 2014

Mariann Ollar

University of Wisconsin - Madison

Marzena J. Rostek

University of Wisconsin - Madison

Date Written: October 1, 2011

Abstract

The literature on information aggregation predicts that market growth unambiguously reduces uncertainty about the value of traded goods. The results were developed within the classical model, which assumes that traders’ values for the exchanged good are determined by fundamental (common) shocks. At the same time, design innovation in contemporaneous markets seems to exploit demand interdependence among agents with similar tastes or common information sharing (e.g., Facebook ads, the practice of customer targeting). This paper demonstrates that with heterogeneous interdependence among agents’ values or noise in signals about values, opportunities to innovate in smaller or less connected (in the network-theoretic sense) markets may dominate those in larger or better connected markets.

Keywords: Interdependent values and noise, Network, Link Formation, Innovation, Information Aggregation, Divisible Good Auction, Commonality

JEL Classification: D44, D82, L13, G14

Suggested Citation

Ollar, Mariann and Rostek, Marzena J., Information Aggregation and Innovation in Market Design (October 1, 2011). NET Institute Working Paper No. 11-12. Available at SSRN: https://ssrn.com/abstract=1957988 or http://dx.doi.org/10.2139/ssrn.1957988

Mariann Ollar (Contact Author)

University of Wisconsin - Madison ( email )

716 Langdon Street
Madison, WI 53706-1481
United States

Marzena J. Rostek

University of Wisconsin - Madison ( email )

1180 Observatory Drive
Madison, WI 53703
United States
(608) 262-6723 (Phone)
(608) 262-2033 (Fax)

HOME PAGE: http://www.ssc.wisc.edu/~mrostek

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