On the Evolution of Market Institutions: The Platform Design Paradox

Georg Kirchsteiger, Carlos Alós-Ferrer and Markus Walzl

No 5538, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: This paper analyses a situation where market designers create new trading platforms and traders learn to select among them. We ask whether 'Walrasian' platforms, leading to market-clearing trading outcomes, will dominate the market in the long run. If several market designers are competing, we find that traders will learn to select non-market clearing platforms with prices systematically above the market-clearing level, provided at least one such platform is introduced by a market designer. This in turn leads all market designers to introduce such non-market clearing platforms. Hence platform competition induces non-competitive market outcomes.

Keywords: Market institutions; Evolution of trading platforms; Learning; Asymmetric rationality (search for similar items in EconPapers)
JEL-codes: C72 D4 D83 L1 (search for similar items in EconPapers)
Date: 2006-03
New Economics Papers: this item is included in nep-com, nep-fmk and nep-gth
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Related works:
Journal Article: On the Evolution of Market Institutions: The Platform Design Paradox (2010)
Working Paper: On the Evolution of Market Institutions: The Platform Design Paradox (2010)
Working Paper: On the Evolution of Market Institutions: The Platform Design Paradox (2007)
Working Paper: On the evolution of market institutions: the platform design paradox (2006)
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