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Private Information in Markets: A Market Design Perspective

Author

Listed:
  • Marzena Rostek

    () (University of Wisconsin-Madison Economics Department)

  • Ji Hee Yoon

    () (University of Wisconsin-Madison Economics Department)

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.

Suggested Citation

  • Marzena Rostek & Ji Hee Yoon, 2013. "Private Information in Markets: A Market Design Perspective," Working Papers 13-21, NET Institute.
  • Handle: RePEc:net:wpaper:1321
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    File URL: http://www.netinst.org/Rostek_Yoon_13-21.pdf
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    References listed on IDEAS

    as
    1. Craig, Ben & von Peter, Goetz, 2014. "Interbank tiering and money center banks," Journal of Financial Intermediation, Elsevier, vol. 23(3), pages 322-347.
    2. Xavier Vives, 2011. "Strategic Supply Function Competition With Private Information," Econometrica, Econometric Society, vol. 79(6), pages 1919-1966, November.
    3. 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.
    4. Albert S. Kyle, 1989. "Informed Speculation with Imperfect Competition," Review of Economic Studies, Oxford University Press, vol. 56(3), pages 317-355.
    5. Ilan Kremer, 2002. "Information Aggregation in Common Value Auctions," Econometrica, Econometric Society, vol. 70(4), pages 1675-1682, July.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    Price Inference; Networks; Dark Pools; Market Design;

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • D53 - Microeconomics - - General Equilibrium and Disequilibrium - - - Financial Markets
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

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