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Markets and Institutions

Research Statement

This research line focuses on the explicit analysis of markets and market institutions.
For instance, Alós-Ferrer and Prat (revised 2011) focuses on signaling through education in job markets where the employers learn the abilities of workers on the job. On a more industrial organization footing, Shi (2010) analyzes endogenous market timing when firms can invest in market research.

A particular research topic, developed in collaboration with Georg Kirchsteiger (ECARES, Université; Libre de Bruxelles), considers competition among market platforms when the traders are boundedly rational and the platforms themselves might be biased, for instance due to the intervention of rational market designers. In Alós-Ferrer and Kirchsteiger (2010), we have shown that, in a general equilibrium framework, unbiased market platforms guaranteeing market clearing are always stochastically stable, i.e. traders (whose switching behavior is modeled through general behavioral rules) will coordinate on them a significant part of the time in the long run. However, other, biased market platforms might also be stable.
Alós-Ferrer, Kirchsteiger, and Walzl (2010) introduced active, rational platform designers and showed a "Platform Design Paradox": competition among market designers actually prevents the introduction of market-clearing platforms. That is, although is some settings market-clearing platforms would always survive if introduced, in other settings traders might find that market designers rationally abstain from introducing them.

More recently (Alós-Ferrer and Kirchsteiger 2013), we have examined a buyers-sellers framework with boundedly rational traders and shown that market clearing institutions are always stable under a general class of learning dynamics. However, we show that there exist other, non-market clearing institutions that are also stable. Therefore, in the long run traders may fail to coordinate exclusively on market clearing institutions. Using a replica-economies approach, we find the results to be robust to large market size. The theoretical predictions were confirmed in a series of platform choice experiments. Traders coordinated on platforms predicted to be stable, including market-clearing as well as non-market clearing ones, while platforms predicted to be unstable were avoided in the long run.


    Relevant Research Projects

    • DFG Project Al-1169/5-1, "Stochastic Stability in Networks and Markets", Principal Investigator: Carlos Alós-Ferrer.