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RSE AMETS Seminar | Simon Loertscher

RSE AMETS Seminar | Simon Loertscher

Speaker: Simon Loertscher

Title: Optimal market thickness and clearing

Abstract: Traders that arrive over time give rise to a dynamic tradeoff between the benefits of increasing market thickness by accumulating traders and the associated cost of delayed trade due to discounting. We analyze this tradeoff in a dynamic bilateral trade  model in which a buyer and seller arrive in each period and draw their types independently from commonly known distributions. By storing traders and allowing them to trade in the future, market thickness increases. For symmetric binary type distributions, optimally thick markets involve storing surprisingly few traders. Nevertheless, their performance is close to that of a large market: for any type distributions, two-thirds of the gains from increased market thickness are achieved by storing just one trader. The benefits of storing traders are even larger if traders' types are their private information and second-best mechanisms are used. For large discount factors, clearing the market at optimally chosen fixed frequencies reaps most gains from dynamic market clearing.

Updated:   6 July 2020 / Responsible Officer:  CBE Communications and Outreach / Page Contact:  College Web Team