Private information in an independent, private-values market provides incentives to traders to manipulate equilibrium prices strategically. This strategic behavior precludes ex post efficient market performance. Increasing the number of traders improves the efficiency of some trading mechanisms by enabling them to better utilize the private information traders' bids and offers reveal. This paper shows that the expected inefficiency of optimally designed mechanisms, relative to ex post efficient allocations, decreases almost quadratically as the number of traders increases.
ASJC Scopus subject areas
- Economics and Econometrics