Trader matching and the selection of market institutions
Carlos Alós-Ferrer () and
Journal of Mathematical Economics, 2017, vol. 69, issue C, 118-127
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.
Keywords: Market institution; Law of one price; Matching; Stochastic stability (search for similar items in EconPapers)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:mateco:v:69:y:2017:i:c:p:118-127
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