Draw a House of Market Engineering

Explain Different Parts of ME House

• Market Outcome: what is achieved by the market activity. After nearly 500 rounds of auctions all frequencies were sold for X billions dollars.
• Agent Behaviour: is impicitely defined by market structure. Behaviour of buyers and sellers, their strategies.
• Market Structure: field that can be controlled by market engineer
  • Micro Structure: economical organization of market: rules, auction types
  • IT-Infrastructure: digital infrastructure of the market, different interfaces, databases, etc.
  • Business Structure: how does market organizer gain money
• Transaction Object: The object that is exchanged in this market. What is sold and bought on the auctions. For example, NFT, frequencies, stocks.
• Economic and Legal Environment: external environment, where a market exists. Government, laws, taxes, another markets. This environment can not be changed, should be perceived as given.

What is the concept of Neo Classical Theory?

• Neo Classical Theory assumes perfect markets that will maximize the profit of sellers and utility of buyers, driven only by interaction of supply and demand.

What are the characteristics of a Perfect Market, and which of them are realistic?

• Utility maximization of consumers - is okay
• Profit maximization of suppliers - is also okay
• Homogenous goods (all sellers are sell identical product: money, shares, gold bars, but not autos) - not realistic
• No personal or time preferences - is okay if there are very many actors
• Perfect transparency of markets (what products are available, for which prices, quantity, location) - is okay with internet
• No transaction costs - mostly not realistic, market should create profit for organizers
• Immediate response of market participants - is mostly okay if there are very many actors

Which assumption makes it unrealistic?

• Neoclassical Theory assumes Perfect Markets, which can be approximated in some cases (like stock market without fees and millions of players) but can not be reached

What is New Institutional Economics?

• New Institutional Economics considers market activity as a product of interaction of demand and supply (like Neo Classical Theory) with institutions (new here)
• Institutions are humanly developed constraints that structure political, economic, and social interaction

What is the main difference between New Institutional Economics and Neo Classical Theory?

• Neo Classical Theory does not make institutions into account.

Explain a difference between formal and informal Institutions

• Formal Institutions are written laws that form the basis for enforcement, all violations are enforced by authority according to predefined written sanctions. Example: relationships between student and university.
• Informal Institutions are usually not written, enforcement is not specified in advance. Example: relationships in student community.

Which origins can institutions have?

• Planned (conscious) Design: Institutions that were planned during some time, dicussed and improved. Example: Patent system
• Spontaneous Evolution: Institutions are formed as a result of a cultural evolutionary process on the basis of which institution can best solve the coordination problem. Institutions that were created quicly to solve the problem, without deep planning. Example: voting for leader in emergency case.

Please name examples for institutions

• Lecture at the university: mostly informal, communication between professor and student bases on some set of unwritten rules
• Exam at the university: mostly formal, rewards and punishments are predifined and submitted
• Patent System: formal

What is Market Engineering?

• structured, systematic and theoretically founded procedure
• of analyzing, designing, introducing and quality assuring
• of (electronic) market platforms as well as their legal framework
• regarding their market mechanisms, IT systems, and business models

What can market engineers control directly?

• Market Structure and Transaction Object

Where is trust & enforcement in ME house located?

• Explain the concept of Order:
  • Order means that various elements in a system remain in a recognizable and predictable interrelationship
  • Model of Smith