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About the book:
Economists often look at markets as given, trying to make predictions about who will do what and what will happen in these markets.Market design, in contrast, does not take markets as given; instead, it combines insights from economic and game theory together with common sense and lessons learned from empirical work and experimental analysis to aid in the design and implementation of actual markets. In recent years the field has grown dramatically - partially because of the successful wave of spectrum auctions in the US and in Europe, which have been designed by a number of prominent economists, and partially because of the increase use of the Internet as the platform over which markets are designed and run. There is now a large number of applications and a growing theoretical literature which this book intends to survey.
Market design is both a science and an art. It is a science in that it applied the formal tools of game theory and mechanism design and it is an art because the participants of these markets are often different from how they are modeled by these theories. Nevertheless, as the book demonstrates, lessons can be learned from successful and un-successful market designs which can be transferred to new and different environments. In this book we shall attempt to bring together the latest research and provide a relatively comprehensive description of applied market design which took place around the world over the last two decades or so. In particular we survey many matching markets: These are environments where there is a need to match large two-sided populations of agents such as medical residents and hospitals, law clerks and judges, patients and kidney donors, to one another. Experience shows that if the arranged match is not appropriately stable, then the market will unravel leading to very inefficient results. We also survey a number of applications related to electronic markets and e-commerce: The Internet is now the preferred platform for most markets and this raises some interesting issues, such as the impact of automation (for example you use an agent to bid in an internet auction). Also related is the resulting competition between exchanges – since anyone can access the Internet anywhere in the world, the geographic location of a market is less relevant and participants typically now face a real choice of trading mechanisms which they can use. While many of the chapters in the book consider a single market where participants have no choice but use the market (e.g. medical residents or law clerks), a number of chapters in this book considers the implications to market designers from the fact that participants will have a choice.