Market microstructure history reveals limits of ai driven trading
Evolution of Market Microstructure in the Age of AI
Computer Science and Game Theory
Summary
Markets have changed a lot over time in how they match buyers and sellers and decide prices. The authors look at how each big change—from human traders to high-speed computers to AI—shifts what makes a good market. They focus on whether markets can work well without everyone showing all their private information. The paper finds that while no perfect solution exists, technology changes what makes it hard or expensive to get market outcomes that are both fair and efficient.
What this means in practice
- •For trading platform developers: Design market mechanisms informed by how technology shifts constraints, improving fairness without full data disclosure.
- •For blockchain protocol designers: Build resource allocation protocols that consider AI agents competing and paying for decentralized market services.
A survey. It maps existing work.
Authors
Irene Aldridge
Abstract
Market microstructure studies how trading rules turn orders into prices and allocations. Those rules have been rebuilt repeatedly: for floor traders, electronic limit order books and high-frequency trading, batch auctions and dark pools, blockchains run by automated market makers and block builders, and now AI agents that discover, pay for, and compete over resources. This survey traces that evolution through one question: can a market allocate scarce goods efficiently and fairly without participants revealing everything they know and want? Each technological shift moved the binding constraint of market design from trader rationality to speed, to control over transaction ordering, to the dimensionality of what participants can report. Impossibility results persist; only their cost moves. We review evidence on high-frequency trading, trading venues, automated market makers, extractable value and algorithmic collusion, and identify allocation as the missing layer of the agent-commerce protocol stack.