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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 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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Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 2012.

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