Trust or robustness? An ecological approach to the study of auction and bilateral markets.

Laura Hernández,Annick Vignes,Stéphanie Saba

doi:10.1371/journal.pone.0196206

Abstract

Centralized markets are often considered more efficient than bilateral exchanges because information is public and the same for all the agents. On decentralized markets, where the information is private, the influence of trust on the market outcome has been underlined by many authors. We present an empirical study of the distinctive Boulogne-sur-Mer Fish Market (where both buyers and sellers can choose to trade by either bidding or bargaining), focused on the interactions between agents. Our approach is inspired by studies of mutualistic ecosystems, where the agents are of two different types (as in plant-pollinator networks) and the interactions only take place between agents of different kinds, naturally providing benefits to both. In our context, where the two kinds of agents are buyers and sellers, our study shows that not only do their interactions bring economic benefits for the agents directly involved, but they also contribute to the stability of the market. Our results help to explain the surprising coexistence of the two forms of market in the distinctive Boulogne sur Mer Fish Market.

Highlights

How do social interactions influence the outcome of economic exchanges? This question, which has generated long-lasting debate between economists and sociologists [1], is beginning to be addressed quantitatively by works focusing on the building up of trust in buyer-seller systems
While it is easy to understand the aggregation of dense matrices producing a denser matrix, how can we explain that the aggregation of sparse matrices might lead to an even denser one? This paradoxical result can be understood by recalling that the degree distribution of buyers in the bilateral sub-market exhibits a longer tail than in the auction market, revealing that a “search phase” takes place every time a new buyer arrives in the market, increasing the density of the matrix aggregated over the whole period
In spite of the widely accepted view that auction markets are more efficient than bilateral ones, the case of the Boulogne-sur-Mer Fish Market, where there is no signal of quality for the goods, shows that both market organizations can coexist without one eclipsing the other

Summary

Introduction

While it is clear that human beings rely on cooperation with others for their survival [2], economic literature mainly supports the idea that auction markets, which involve competition among buyers without any direct social interaction with the sellers, are the most informationally efficient way of organizing exchanges. More recent articles [5, 6] underline that, when goods are heterogeneous and there is no signal of quality, a decentralized mechanism (bilateral transactions) allows people to gather information and to better evaluate the intrinsic quality of goods.

Methods

Results

Discussion

Conclusion