The Effect of Delays in Information Exchange in Electronic Markets

In this research I explored the impact of information delays in a simple model of negotiation through an electronic market system. I found that a market can accurately reflect buyers' and sellers' preferences only if the rate of injection of price information multiplied by the rate of transfer of price information falls between 0 and 2. It is argued that markets adjust themselves to this constraint in practice. The alternatives are to experience chaotic and catastrophic volatility in prices or to go out of operation. Thus, electronic commerce can provide value beyond merely speeding up operations and increasing capacity. It also helps avoid misleading behavior by both buyer and seller and allows markets to operate in a wider range of trading environments.