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Information Percolation in Segmented Markets

Author

Listed:
  • Darrell DUFFIE

    (Graduate School of Business, Stanford University and NBER)

  • Semyon MALAMUD

    (EPFL and Swiss Finance Institute)

  • Gustavo MANSO

    (Sloan School of Business, MIT)

Abstract

We calculate equilibria of dynamic double-auction markets in which agents are distinguished by their preferences and information. Over time, agents are privately informed by bids and offers. Investors are segmented into groups that differ with respect to characteristics determining information quality, including initial infor- mation precision as well as market \connectivity," the expected frequency of their trading opportunities. Investors with superior information sources attain higher expected profits, provided their counterparties are unable to observe the qual- ity of those sources. If, however, the quality of bidders' information sources are commonly observable, then, under conditions, investors with superior information sources have lower expected profits.

Suggested Citation

  • Darrell DUFFIE & Semyon MALAMUD & Gustavo MANSO, 2010. "Information Percolation in Segmented Markets," Swiss Finance Institute Research Paper Series 10-09, Swiss Finance Institute.
    • Handle: RePEc:chf:rpseri:rp1009
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    References listed on IDEAS

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    More about this item

    Keywords

    search; matching; double auctions; segmented markets; equilibrium; information; percolation;
    All these keywords.

    JEL classification:

    • C78 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Bargaining Theory; Matching Theory
    • C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games
    • C62 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Existence and Stability Conditions of Equilibrium
    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions

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