Market Dynamics in Cyberspace

University Of California-Santa Cruz, Santa Cruz CA

Investigators

Abstract

This research project is undertaken to guide the construction of new markets on the Internet. It will help answer the following questions: Should the order flow be accessible only to specialists or to everyone? Should last-second orders be penalized? Should only one side of the market (say sellers) post price, or both sides? Should automated buyers and sellers be encouraged or discouraged? In general, how effective is a new market in quickly leading intelligent (but self-interested) traders to efficient transactions and encouraging their participation? Three projects will be carried out to answer these questions. The first project examines how automated access strategies affect Internet congestion. The second project compares the effectiveness of alternative market institutions in Internet-like environments. The third project compares alternative pricing schemes for Internet access. Four complementary methodologies will be employed: 1) theoretical models of market equilibrium and transient performance; 2) computer simulations of traders and their market interactions; 3) laboratory markets with human traders interacting with automated traders; and 4) statistical analysis of recent Internet activity.