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Trader matching and the selection of market institutions

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  • Alós-Ferrer, Carlos
  • Buckenmaier, Johannes

Abstract

We analyze a stochastic dynamic learning model with boundedly rational traders who can choose among trading institutions with different matching characteristics. The framework allows for institutions featuring multiple prices (per good), thus violating the “law of one price.” We find that centralized institutions are stochastically stable for a broad class of dynamics and behavioral rules, independently of which other institutions are available. However, some decentralized institutions featuring multiple prices can also survive in the long run, depending on specific characteristics of the underlying learning dynamics such as fast transitions or optimistic behavior.

Suggested Citation

  • Alós-Ferrer, Carlos & Buckenmaier, Johannes, 2017. "Trader matching and the selection of market institutions," Journal of Mathematical Economics, Elsevier, vol. 69(C), pages 118-127.
    • Handle: RePEc:eee:mateco:v:69:y:2017:i:c:p:118-127
    DOI: 10.1016/j.jmateco.2017.02.001
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    References listed on IDEAS

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