Information Aggregation and Innovation in Market Design

Posted: 24 Nov 2011 Last revised: 18 Dec 2014

See all articles by Mariann Ollar

Mariann Ollar

University of Groningen

Marzena J. Rostek

University of Wisconsin - Madison

Date Written: October 1, 2011

Abstract

The 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.

Keywords: Interdependent values and noise, Network, Link Formation, Innovation, Information Aggregation, Divisible Good Auction, Commonality

JEL Classification: D44, D82, L13, G14

Suggested Citation

Ollar, Mariann and Rostek, Marzena J., Information Aggregation and Innovation in Market Design (October 1, 2011). NET Institute Working Paper No. 11-12, Available at SSRN: https://ssrn.com/abstract=1957988 or http://dx.doi.org/10.2139/ssrn.1957988

Mariann Ollar (Contact Author)

University of Groningen ( email )

P.O. Box 800
9700 AH Groningen, Groningen 9700 AV
Netherlands

Marzena J. Rostek

University of Wisconsin - Madison ( email )

1180 Observatory Drive
Madison, WI 53703
United States
(608) 262-6723 (Phone)
(608) 262-2033 (Fax)

HOME PAGE: http://www.ssc.wisc.edu/~mrostek

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