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Do Market Institutions Adapt Efficiently to Transaction Costs?

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Abstract

We study an experimental market with an endogenous institution. In particular, the information and matching structure of the market is determined by the decisions of the individual traders. We examine the effects of the imposition of exogenous transaction (communication) costs. We find that the institution adapts in the predicted direction but it does not do so in a fully efficient manner. Traders incur avoidable transactions costs, and the market outcome does not fully exhaust the possible gains from trade.

Suggested Citation

  • Georg Kirchsteiger & Muriel Niederle & Jan Potters, 2000. "Do Market Institutions Adapt Efficiently to Transaction Costs?," Vienna Economics Papers 0006, University of Vienna, Department of Economics.
  • Handle: RePEc:vie:viennp:0006
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    JEL classification:

    • C9 - Mathematical and Quantitative Methods - - Design of Experiments
    • D4 - Microeconomics - - Market Structure, Pricing, and Design
    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance

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