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Private Information in Markets: A Market Design Perspective

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  • Marzena Rostek

    ()
    (University of Wisconsin-Madison Economics Department)

  • Ji Hee Yoon

    ()
    (University of Wisconsin-Madison Economics Department)

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    Abstract

    This paper studies the impact of heterogeneity in interdependence of trader values on price inference and welfare. A model of double auction with quasilinear-quadratic utilities is introduced that allows for arbitrary Gaussian information structures. With heterogeneous interdependence, some traders learn more from prices whereas others from private signals; thus, heterogeneity separates informed and uninformed trading. Changes in market structure can improve both informativeness of prices and private signals of a trader and make some traders learn more from prices than others. We characterize conditions on the information structure for price and signal inference to involve no tradeoff.

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    File URL: http://www.netinst.org/Rostek_Yoon_13-21.pdf
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    Bibliographic Info

    Paper provided by NET Institute in its series Working Papers with number 13-21.

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    Length: 45 pages
    Date of creation: Sep 2013
    Date of revision:
    Handle: RePEc:net:wpaper:1321

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    Web page: http://www.NETinst.org/

    Related research

    Keywords: Price Inference; Networks; Dark Pools; Market Design;

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    1. Kyle, Albert S, 1989. "Informed Speculation with Imperfect Competition," Review of Economic Studies, Wiley Blackwell, vol. 56(3), pages 317-55, July.
    2. Ben Craig & Goetz von Peter, 2010. "Interbank tiering and money center banks," BIS Working Papers 322, Bank for International Settlements.
    3. Xavier Vives, 2009. "Strategic Supply Function Competition with Private Information," CESifo Working Paper Series 2856, CESifo Group Munich.
    4. Bech, Morten L. & Atalay, Enghin, 2010. "The topology of the federal funds market," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 389(22), pages 5223-5246.
    5. Ilan Kremer, 2002. "Information Aggregation in Common Value Auctions," Econometrica, Econometric Society, vol. 70(4), pages 1675-1682, July.
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