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Impact of Market Design and Trading Network Structure on Market Efficiency

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Modelling and Mining Networks (WAW 2024)

Part of the book series: Lecture Notes in Computer Science ((LNCS,volume 14671))

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Abstract

This paper investigates the influence of market design, market size, and trading network structure on market efficiency and trade participation rate. The study considers two market designs: Zero Intelligence Traders (ZIT) in Chamberlin’s bilateral haggling market and a greedy matching of traders on a network. Sellers and buyers are embedded in a random bipartite graph with varying network densities, and markets vary in size from 20 to 2000 traders.

Simulations reveal that greedy matching generally leads to more efficient allocations than ZIT trading networks. By increasing the average degree of a trading network from 1 to 5 or 10, market efficiency can be significantly improved for both market designs, achieving \(89\%\) and \(95\%\) of maximum efficiency, respectively. The study also contradicts the common belief that larger markets are better, as no significant impact of market size was found. We discuss the policy implications of these results.

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Notes

  1. 1.

    https://github.com/Matzawisza/TradeInNetwork.

  2. 2.

    Potential market efficiency is the maximum market efficiency in a complete graph for a given market design, i.e., it is roughly \(73.6\%\) for ZIT and \(100\%\) for a greedy matching of traders.

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Author information

Authors and Affiliations

  1. Department of Industrial and Systems Engineering, University of Minnesota, 207 Church Street SE, Minneapolis, MN, 55455, USA

    Nick Arnosti

  2. Decision Analysis and Support Unit, SGH Warsaw School of Economics, Niepodległości 162, 02-554, Warsaw, Poland

    Bogumił Kamiński & Mateusz Zawisza

  3. Department of Mathematics, Toronto Metropolitan University, 350 Victoria Street, Toronto, ON, Canada

    Paweł Prałat

Authors
  1. Nick Arnosti
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  2. Bogumił Kamiński
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  3. Paweł Prałat
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  4. Mateusz Zawisza
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Corresponding author

Correspondence to Mateusz Zawisza .

Editor information

Editors and Affiliations

  1. Tutte Institute for Mathematics and Computing, Ottawa, ON, Canada

    Megan Dewar

  2. SGH Warsaw School of Economics, Warsaw, Poland

    Bogumił Kamiński

  3. SGH Warsaw School of Economics, Warsaw, Poland

    Daniel Kaszyński

  4. SGH Warsaw School of Economics, Warsaw, Poland

    Łukasz Kraiński

  5. Toronto Metropolitan University, Toronto, ON, Canada

    Paweł Prałat

  6. Tutte Institute for Mathematics and Computing, Ottawa, ON, Canada

    François Théberge

  7. SGH Warsaw School of Economics, Warsaw, Poland

    Małgorzata Wrzosek

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Arnosti, N., Kamiński, B., Prałat, P., Zawisza, M. (2024). Impact of Market Design and Trading Network Structure on Market Efficiency. In: Dewar, M., et al. Modelling and Mining Networks. WAW 2024. Lecture Notes in Computer Science, vol 14671. Springer, Cham. https://doi.org/10.1007/978-3-031-59205-8_4

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  • DOI: https://doi.org/10.1007/978-3-031-59205-8_4

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  • Publisher Name: Springer, Cham

  • Print ISBN: 978-3-031-59204-1

  • Online ISBN: 978-3-031-59205-8

  • eBook Packages: Computer ScienceComputer Science (R0)

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