Realizing The Market Potential

In many markets much potential remains untapped because the right buyers and sellers never meet or negotiations fail. A fundamental challenge is to ensure that buyers with high willingness to pay * meet sellers with low willingness to accept *    - and that they settle fair prices. Market design provides the structure and the trading rules that ease this valuable matching * and pricing * across individuals, firms and borders. The success of carefully organized auctions or exchange markets results from the gains of better matching and pricing across markets.

Better Matching

In the matching of buyers and sellers, it is crucial but time consuming to ensure timely supply or demand of the right quantity and quality of the right commodity. With traditional bilateral negotiations, the cost of searching and matching limits the number of matches one can try. With central coordination, a single system has contact to all sellers and buyers. Thus, more matches can be tried at lower cost - ideally, all possible matches can be attempted.

Better Pricing

In many markets list prices do not exist, nor are prices negotiable. Therefore, for each match of a buyer and seller, a price has to be settled. Negotiating the price is difficult and time consuming and limits the number of matches that can be tried. With central coordination, a fair pricing may be done automatically at low cost.

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