On the Evolution of Trading Institutions: The Platform Design Paradox
AbstractThis paper analyzes a learning model where sophisticated market designers create new trading platforms and boundedly rational traders select among them. We ask wether "Walrasian'''' platforms, leading to efficient (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 inefficient (non-market clearing) platforms. Hence platform competition induces non-competitive market outcomes.
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Bibliographic InfoPaper provided by Maastricht : METEOR, Maastricht Research School of Economics of Technology and Organization in its series Research Memoranda with number 004.
Date of creation: 2006
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Web page: http://www.maastrichtuniversity.nl/web/UMPublications.htm
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