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On the Evolution of Market Institutions: The Platform Design Paradox

  • Carlos Alós-Ferrer
  • Georg Kirchsteiger
  • Markus Walzl

We study competition among market designers who create new trading platforms, when boundedly rational 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 compete, 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. Copyright � The Author(s). Journal compilation � Royal Economic Society 2009.

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Article provided by Royal Economic Society in its journal The Economic Journal.

Volume (Year): 120 (2010)
Issue (Month): 543 (03)
Pages: 215-243

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Handle: RePEc:ecj:econjl:v:120:y:2010:i:543:p:215-243
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