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Market Research and Market Design

Author

Listed:
  • Baliga Sandeep

    (Northwestern University)

  • Vohra Rakesh

    (Northwestern University)

Abstract

We study trading models when the distribution of signals such as costs or values is not known to traders or the mechanism designer when the profit-maximizing trading procedure is designed. We present adaptive mechanisms that simultaneously elicit this information (market research) while maintaining incentive compatibility and maximizing profits when the set of traders is large (market design). First, we study a monopoly pricing model where neither the seller nor the buyers know the distribution of values. Second, we study a model with a broker intermediating trade between a large number of buyers and sellers with private information about their valuations and costs. We show that when the set of traders becomes large our adaptive mechanisms achieve the same expected profits for the monopolist and the broker as when the distribution of signals is common knowledge.

Suggested Citation

  • Baliga Sandeep & Vohra Rakesh, 2003. "Market Research and Market Design," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 3(1), pages 1-27, August.
    • Handle: RePEc:bpj:bejtec:v:advances.3:y:2003:i:1:n:5
    DOI: 10.2202/1534-5963.1059
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    Cited by:

    1. Eduardo M Azevedo & Eric Budish, 2019. "Strategy-proofness in the Large," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 86(1), pages 81-116.
    2. Tim Roughgarden & Inbal Talgam-Cohen & Qiqi Yan, 2019. "Robust Auctions for Revenue via Enhanced Competition," Operations Research, INFORMS, vol. 68(4), pages 1074-1094, July.
    3. Simon Loertscher & Andras Niedermayer, 2008. "Fee Setting Intermediaries: On Real Estate Agents, Stock Brokers, and Auction Houses," Discussion Papers 1472, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
    4. Devanur, Nikhil R. & Hartline, Jason D. & Yan, Qiqi, 2015. "Envy freedom and prior-free mechanism design," Journal of Economic Theory, Elsevier, vol. 156(C), pages 103-143.
    5. Goldberg, Andrew V. & Hartline, Jason D. & Karlin, Anna R. & Saks, Michael & Wright, Andrew, 2006. "Competitive auctions," Games and Economic Behavior, Elsevier, vol. 55(2), pages 242-269, May.
    6. Loertscher, Simon & Marx, Leslie M., 2023. "Asymptotically optimal prior-free asset market mechanisms," Games and Economic Behavior, Elsevier, vol. 137(C), pages 68-90.
    7. Chen, Jing & Micali, Silvio, 2015. "Mechanism design with possibilistic beliefs," Journal of Economic Theory, Elsevier, vol. 156(C), pages 77-102.
    8. Simon Loertscher & Andras Niedermayer, 2012. "Fee-Setting Mechanisms: On Optimal Pricing by Intermediaries and Indirect Taxation," Department of Economics - Working Papers Series 1162, The University of Melbourne.
    9. Shuchi Chawla & Jason D. Hartline & Denis Nekipelov, 2016. "A/B Testing of Auctions," Papers 1606.00908, arXiv.org.
    10. Jacob Ehrlich & Maximilian Moll & Stefan Pickl, 2025. "A generalized trade reduction mechanism," Central European Journal of Operations Research, Springer;Slovak Society for Operations Research;Hungarian Operational Research Society;Czech Society for Operations Research;Österr. Gesellschaft für Operations Research (ÖGOR);Slovenian Society Informatika - Section for Operational Research;Croatian Operational Research Society, vol. 33(2), pages 429-448, June.
    11. Pierangelo Mori, 2008. "Design of Multidimensional Franchise Auctions by an Ignorant Principal," Working Papers - Economics wp2008_13.rdf, Universita' degli Studi di Firenze, Dipartimento di Scienze per l'Economia e l'Impresa.
    12. Eric Cope, 2007. "Bayesian strategies for dynamic pricing in e‐commerce," Naval Research Logistics (NRL), John Wiley & Sons, vol. 54(3), pages 265-281, April.
    13. Simon Loertscher & Andras Niedermayer, 2007. "When is Seller Price Setting with Linear Fees Optimal for Intermediaries?," Diskussionsschriften dp0706, Universitaet Bern, Departement Volkswirtschaft.
    14. Loertscher, Simon & Mezzetti, Claudio, 2021. "A dominant strategy, double clock auction with estimation-based tatonnement," Theoretical Economics, Econometric Society, vol. 16(3), July.
    15. Fu, Hu & Haghpanah, Nima & Hartline, Jason & Kleinberg, Robert, 2021. "Full surplus extraction from samples," Journal of Economic Theory, Elsevier, vol. 193(C).
    16. Moulin, Hervé, 2009. "Almost budget-balanced VCG mechanisms to assign multiple objects," Journal of Economic Theory, Elsevier, vol. 144(1), pages 96-119, January.
    17. Loertscher, Simon & Marx, Leslie M., 2020. "Asymptotically optimal prior-free clock auctions," Journal of Economic Theory, Elsevier, vol. 187(C).
    18. Tim Roughgarden & Inbal Talgam-Cohen, 2018. "Approximately Optimal Mechanism Design," Papers 1812.11896, arXiv.org, revised Aug 2020.
    19. Andras Niedermayer & Artyom Shneyerov, 2014. "For‐Profit Search Platforms," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 55(3), pages 765-789, August.
    20. Ilya Hajiaghayi & MohammadTaghi Hajiaghayi & Gary Peng & Suho Shin, 2024. "Gains-from-Trade in Bilateral Trade with a Broker," Papers 2410.17444, arXiv.org, revised Jan 2025.
    21. Yash Kanoria & Hamid Nazerzadeh, 2021. "Incentive-Compatible Learning of Reserve Prices for Repeated Auctions," Operations Research, INFORMS, vol. 69(2), pages 509-524, March.
    22. Hashimoto, Tadashi, 2018. "The generalized random priority mechanism with budgets," Journal of Economic Theory, Elsevier, vol. 177(C), pages 708-733.
    23. Dhangwatnotai, Peerapong & Roughgarden, Tim & Yan, Qiqi, 2015. "Revenue maximization with a single sample," Games and Economic Behavior, Elsevier, vol. 91(C), pages 318-333.

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