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On the Evolution of Market Institutions: The Platform Design Paradox

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Author Info
Alos-Ferrer, Carlos
Kirchsteiger, Georg
Walzl, Markus

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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.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 5538.

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Date of creation: Mar 2006
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Handle: RePEc:cpr:ceprdp:5538

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

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Find related papers by JEL classification:
C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
D4 - Microeconomics - - Market Structure and Pricing
D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search, Learning, and Information
L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance

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