The economist as engineer: Game theory, experimentation, and computation as tools for design economics

Roth, Alvin E. “The economist as engineer: Game theory, experimentation, and computation as tools for design economics." Econometrica 70.4 (2002): 1341-1378. [PDF] [**]


Economists have lately been called upon not only to analyze markets, but to design them. Market design involves a responsibility for detail, a need to deal with all of a market’s complications, not just its principle features. Designers therefore cannot work only with the simple conceptual models used for theoretical insights into the general working of markets. Instead, market design calls for an engineering approach. Drawing primarily on the design of the entry level labor market for American doctors (the National Resident Matching Program), and of the auctions of radio spectrum conducted by the Federal Communications Commission, this paper makes the case that experimental and computational economics are natural complements to game theory in the work of design. The paper also argues that some of the challenges facing both markets involve dealing with related kinds of complementarities, and that this suggests an agenda for future theoretical research.

KEYWORDS:Market design, game theory, experimental economics, computational economics

On the evolution of monopoly pricing in Internet-assisted search markets

Date: 2013
By: Aurora García-Gallego (LEE & Department of Economics, Universitat Jaume I, Castellón, Spain)
Nikolaos Georgantzis (GLOBE & Economics Department, University of Granada, Spain)
Ainhoa Jaramillo-Gutiérrez (EriCes & Dpt. of Applied Economics, University of Valencia, Spain)
Pedro Pereira (Autoridade da Concorrência and CEFAGE-UE, U. of Evora, Portugal)
J. Carlos Pernías-Cerrillo (Economics Department, Universitat Jaume I, Castellón, Spain)
We study the evolution of prices in markets assisted by price-comparison engines. We use laboratory data obtained under two industry sizes and two conditions concerning the sample (complete, incomplete) of prices available to informed consumers. Distributions are typically bimodal. One of the two modes, corresponding to monopoly prices, tends to increasingly attract prices over time. The second one, corresponding to interior prices, presents a decreasing trend. Monopoly pricing can be used as an insurance against more competitive (but riskier) behavior. In fact, subjects earning low profits due to interior pricing in the past are more likely to choose monopoly pricing.
Keywords: Internet Economics, price-comparison search engines, mixed strategy equilibria, experimental economics