Market engineering

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The market engineering research area is dedicated to the design and further development of electronic markets and relates in particular to the way in which supply and demand are brought together and processed in transactions. In addition to the conception, the implementation, introduction, monitoring and continuous improvement of markets are also the focus of research. In terms of content, aspects of economics (especially game theory and mechanism design ), finance , business informatics and operations research shape the research.

Market engineering
Market engineering process

Market Engineering Framework

The Market Engineering Framework provides an overview of the various aspects and components of market engineering.

Market engineering process

The market engineering process illustrates the general procedure for constructing a market (cf. Neumann 2004). To design an electronic market, the general requirements for the market must first be analyzed in the initial phase. Based on the requirements, a corresponding market design is selected in the second phase and the market is modeled. In the third phase, the technical and economic properties of the model are checked. To ensure that the requirements are met, the design and evaluation phases are fed back into the market engineering process. In the fourth phase, the model is implemented electronically and finally the market platform is introduced. In each phase of the market engineering process, the market engineer can decide whether to continue with the next step or to repeat an earlier step.

Requirements analysis

In the first step of the market engineering process, the requirements and goals of the market to be constructed are to be formalized. The work section contains two phases: the definition of the framework conditions and the requirements analysis. By defining the framework conditions, the economic context in which the future market is to be designed is first defined. For this purpose, the commercial objects, the market segments and agents that interact on a specific segment are recorded and analyzed. Based on this analysis, the potential market segments for resource trading are identified and compared with one another. If a suitable market segment has been identified, the use of agents in the market segment can then be examined. The market segment thus determines the economic framework conditions of the electronic market. In the requirements analysis, the requirements are set with a view to the underlying resource allocation problem and possible economic restrictions. At the end of the phase, the market engineer decides whether an existing mechanism can be tailored to the domain or a completely new market mechanism has to be developed.

Market design

The second step of the market engineering process comprises the market design taking into account the goods, the market microstructure, the IT infrastructure and the business model. Various computer science methods are used in market engineering when designing the IT infrastructure. However, there are also software tools that support the market engineer in market design. E.g. the generic market system meet2trade offers various auction procedures and negotiation models (Weinhardt et al. 2006). The result of the second step is a conceptual model of the market system that will be evaluated and implemented in the next steps.

Evaluation

After the market has been designed in the previous step, the technical and economic properties of the market model are examined. Both the functionality of the software prototypes are tested (functionality tests) and the efficiency of the market results and the business model are evaluated (profitability tests). They should ensure that the system correctly reflects the market-specific rules. In contrast, the profitability tests check whether the electronic market achieves the desired economic return. Analytical and experimental methods are used in this phase. The experimental methods consist of laboratory experiments, numerical simulations or agent-based simulations. For example, “ZTree”, “Repast”, “MES” and “AMASE” as parts of the “meet2trade” system and the simulation program “jCase” can be used. After the functionality and profitability tests have been carried out, the first simulation runs can be carried out with the software prototypes. These samples provide initial feedback on the acceptance of the system by market participants and allow the market engineer to adapt the underlying market-specific rules or to correct the software design.

implementation

In this section the evaluated model is implemented and implemented as a software system as an electronic marketplace. For this purpose, either the prototype from the above-mentioned evaluation process can be further developed or a completely new system can be implemented. This step is supported by conventional software development concepts and tools, such as UML or the “Rational Unified Process”. The result of this phase is a fully implemented electronic market that complies with market-specific regulations and the associated business model.

introduction

In the last step of the market engineering process, the electronic market is introduced and the real business process initiated.

literature

  • Kolitz, K. and C. Weinhardt (2006). MES - An experimental system for studying electronic markets. MKWI 2006, Passau, Germany.
  • Neumann, D. (2004). Market Engineering - A Structured Design Process for Electronic Markets. Faculty of Economics. Karlsruhe, University of Karlsruhe (TH).
  • Neumann, D., J. Maekioe, et al. (2005). CAME - A Toolset for Configuring Electronic Markets. ECIS, Regensburg.
  • Roth, AE (2000). Game Theory as a Tool for Market Design. Game Practice: Contributions from Applied Game Theory. F. Patrone, I. Garcia-Jurado and S. Tijs. Dordrecht, Kluwer: 7-18.
  • Roth, AE (2002). "The Economist as Engineer: Game Theory, Experimental Economics and Computation as Tools for Design Economics." Econometrica 70 (4): 1341-1378.
  • Smith, V. (2003). Markets, Institutions and Experiments. Encyclopedia of Cognitive Science. L. needle. London, Nature Publishing Group. 2: 991-998.
  • Weinhardt, C., C. Holtmann, et al. (2003). "Market Engineering." Wirtschaftsinformatik 45 (6): 635–640.
  • Weinhardt, C., D. Neumann, et al. (2006). "Computer-aided Market Engineering." Communications of the ACM 49 (7): 79.
  • Wurman, Wellman and Walsh (1998). "The {Michigan Internet AuctionBot}: {A} Configurable Auction Server for Human and Software Agents" (Proceedings of the 2nd International Conference on Autonomous Agents)

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