Project description
Market selection, frictions, and the information content of prices
Informative prices require an efficient price formation mechanism as well as informed market participants. The ERC-funded INFORMATIVEPRICES project will explore which market configurations result in prices that aggregate information dispersed among market participants, as well as how economic agents acquire information with regard to different levels of friction in the markets. The project will study information content of prices when choosing among multiple common-value auctions, the pattern of market selection by informed and uninformed participants, information aggregation in auctions and the effectiveness of acquiring information through communication with experts.
Objective
This project studies information aggregation in multiple-linked auction markets with large numbers of goods and bidders. Past work assumes bidders trade in a single, centralized, frictionless auction market. Instead, I study bidders with unit demand who decide to purchase one of many possible goods which are on auction in distinct markets. The goods traded in each market are identical, common-value objects and the price is determined by a uniform-price auction. Bidders receive imperfect signals about the state of the world and select to bid in one of the auction markets. The markets differ in institutional structure and therefore frictions. Market frictions result from imperfect competition, government interventions, informational frictions, and preference heterogeneity. All such frictions render the gains from trade uncertain.
I address the following questions: How do market frictions affect information aggregation if bidders can strategically choose between markets? What are the mechanisms through which market imperfections disrupt information aggregation? Which market’s price is a better statistic for market participants’ information? Which market attracts better-informed bidders? Do prices aggregate beliefs more accurately in good times or in bad?
Initial findings suggest that the proposed framework can prove particularly fruitful in addressing these questions. Specifically, I show if the gains from trade are uncertain in even one market, then prices do not aggregate information in any of the markets. In contrast, if all markets are frictionless, then the price in each market aggregates information. These findings are driven by how bidders self-select across markets: Better-informed bidders select frictional markets while uninformed, pessimistic bidders select the safety of frictionless markets. These findings suggest a novel mechanism through which market imperfections in one market can have widespread effects across all linked markets.
Keywords
Project’s keywords as indicated by the project coordinator. Not to be confused with the EuroSciVoc taxonomy (Fields of science)
Project’s keywords as indicated by the project coordinator. Not to be confused with the EuroSciVoc taxonomy (Fields of science)
Programme(s)
Multi-annual funding programmes that define the EU’s priorities for research and innovation.
Multi-annual funding programmes that define the EU’s priorities for research and innovation.
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H2020-EU.1.1. - EXCELLENT SCIENCE - European Research Council (ERC)
MAIN PROGRAMME
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Topic(s)
Calls for proposals are divided into topics. A topic defines a specific subject or area for which applicants can submit proposals. The description of a topic comprises its specific scope and the expected impact of the funded project.
Calls for proposals are divided into topics. A topic defines a specific subject or area for which applicants can submit proposals. The description of a topic comprises its specific scope and the expected impact of the funded project.
Funding Scheme
Funding scheme (or “Type of Action”) inside a programme with common features. It specifies: the scope of what is funded; the reimbursement rate; specific evaluation criteria to qualify for funding; and the use of simplified forms of costs like lump sums.
Funding scheme (or “Type of Action”) inside a programme with common features. It specifies: the scope of what is funded; the reimbursement rate; specific evaluation criteria to qualify for funding; and the use of simplified forms of costs like lump sums.
ERC-COG - Consolidator Grant
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Call for proposal
Procedure for inviting applicants to submit project proposals, with the aim of receiving EU funding.
Procedure for inviting applicants to submit project proposals, with the aim of receiving EU funding.
(opens in new window) ERC-2015-CoG
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Net EU financial contribution. The sum of money that the participant receives, deducted by the EU contribution to its linked third party. It considers the distribution of the EU financial contribution between direct beneficiaries of the project and other types of participants, like third-party participants.
34450 Istanbul
Türkiye
The total costs incurred by this organisation to participate in the project, including direct and indirect costs. This amount is a subset of the overall project budget.