Market-Engineering

1 Why Market Engineering? The difficulty in designing and implementing electronic markets is oftentimes the interdependence of technical and economic objectives (Weinhardt et al. 2006). From an economic viewpoint, an electronic market must encompass common economic performance desiderata such as allocative efficiency. Relying on existing market mechanisms known from other contexts when constructing new markets may, however, result in poor efficiency (Lai 2005). The mechanism designer also has to account for the technical conditions of the target domain. To give an example, in case of a market for allocating Grid computing resources these conditions comprise the underlying environment in terms of Grid middleware and the requirements of potential Grid users and applications. The market should act as a resource allocation manager, hence, fulfilling general requirements upon such a manager. This allows the introduction of the precondition that a market apt for the Grid has to be realized as an electronic market. Otherwise, the market cannot fulfill an automated resource allocation as required by a Grid resource management system. Different requirements from technical and economic viewpoints may lead to different and oftentimes conflicting objectives. Lai (2005, p.4) points out that " a pure mechanism designer is likely to design an economic mechanism with high economic efficiency, but with little concern for traditional metrics of computational efficiency, reliability, security, complexity, and ease-of-use. Pure system designers have generally done the inverse. " As such, neither a pure mechanism design driven nor a pure system design driven approach may lead to a useful overall design and implementation of an adequate electronic market. When constructing electronic markets, it is essential to consider different influences that arise from technical fundamentals, potential user requirements, business constraints, and economic objectives. Each of these influences has a profound impact on the outcome and, as a consequence, on the acceptance of the market (Weinhardt et al. 2003). The market engineering approach manages these influences by means of a structured, systematic, and Market Engineering 2 theoretically founded procedure of designing, implementing, evaluating, and introducing electronic market platforms (Weinhardt et al. The market engineering approach is structured by means of a process as depicted in Figure 1: Taking into account the objectives of the new electronic markets, the requirements of the new electronic market are deduced in the first stage. Subsequently, the new market is designed with simultaneous consideration of the transaction object, the market microstructure, the IT infrastructure, and the business …