Information Aggregation and Innovation in Market Design
AbstractThe 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.
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Bibliographic InfoPaper provided by NET Institute in its series Working Papers with number 11-12.
Length: 20 pages
Date of creation: Sep 2011
Date of revision:
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Web page: http://www.NETinst.org/
Interdependent values and noise; Network; Link Formation; Innovation; Information Aggregation; Divisible Good Auction; Commonality;
Find related papers by JEL classification:
- D44 - Microeconomics - - Market Structure and Pricing - - - Auctions
- D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
- L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
- G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
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