Insights from Experimental Economics for Market Regulation

M. Krause, Sabine Kröger () and Jan Potters

Review of Business and Economic Literature, 2004, vol. XLIX, issue 2, 217-238

Abstract: We present selected results in experimental economics with relevance for market regulation and derive from them concrete insights that could be interesting for regulating authorities. For those readers that are new to experimental economics, the purposes and advantages of economic experiments are discussed and the experimental double-auction market is described in detail to serve as a benchmark example. The experimental results regarding three potential sources of market failure are then outlined: market power, asymmetric information, and externalities. Furthermore, experimental test-bedding, a promising technique for market regulators to examine a new market design ex-ante, is discussed. One important contribution of experimental economics we would like to stress is that the market institution is more important for market outcomes than economic theory has recognized so far.

Date: 2004-02
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