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On the Evolution of Market Institutions: The Platform Design Paradox

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Author Info
Carlos Alós-Ferrer ()
Georg Kirchsteiger ()
Markus Walzl ()

Additional information is available for the following registered author(s):

Abstract

We study competition among market designers who create new trading platforms, when boundedly rational traders learn to select among them. We ask whether efficient 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 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 market designers to introduce non-market clearing platforms. Hence platform competition induces non-competitive market outcomes.

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Publisher Info
Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number CESifo Working Paper No. 2012.

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Date of creation: 2007
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Handle: RePEc:ces:ceswps:_2012

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Related research
Keywords: market institutions; evolution of trading platforms; learning; asymmetric rationality;

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Find related papers by JEL classification:
C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
D40 - Microeconomics - - Market Structure and Pricing - - - General
D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search, Learning, and Information
L10 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - General

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