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On the Evolution of Market Institutions: The Platform Design Paradox

  • Alos-Ferrer, Carlos
  • Kirchsteiger, Georg
  • Walzl, Markus

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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  1. Carlos Alós-Ferrer & Georg Kirchsteiger, 2003. "Does Learning Lead to Coordination in Market Clearing Institutions?," Vienna Economics Papers 0319, University of Vienna, Department of Economics.
  2. Roth, Alvin & Ockenfels, Axel & Ariely, Dan, 2005. "An Experimental Analysis of Ending Rules in Internet Auctions," Scholarly Articles 2579649, Harvard University Department of Economics.
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  9. Carlos Alós-Ferrer, 2000. "Finite Population Dynamics and Mixed Equilibria," Vienna Economics Papers 0008, University of Vienna, Department of Economics.
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  15. Laibson, David I. & Gabaix, Xavier, 2006. "Shrouded Attributes, Consumer Myopia, and Information Suppression in Competitive Markets," Scholarly Articles 4554333, Harvard University Department of Economics.
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  22. Lawrence Blume, 1993. "The Statistical Mechanics of Best-Response Strategy Revision," Game Theory and Information 9307001, EconWPA, revised 26 Jan 1994.
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  24. Plott, Charles R, 1982. "Industrial Organization Theory and Experimental Economics," Journal of Economic Literature, American Economic Association, vol. 20(4), pages 1485-1527, December.
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  26. Samuelson Larry, 1994. "Stochastic Stability in Games with Alternative Best Replies," Journal of Economic Theory, Elsevier, vol. 64(1), pages 35-65, October.
  27. Axel Ockenfels & Alvin E. Roth, 2003. "Late and Multiple Bidding in Second Price Internet Auctions: Theory and Evidence Concerning Different Rules for Ending an Auction," CESifo Working Paper Series 992, CESifo Group Munich.
  28. Ellison, G., 1996. "Basins of Attraction, Long Run Equilibria, and the Speed of Step-by- Step Evolution," Working papers 96-4, Massachusetts Institute of Technology (MIT), Department of Economics.
  29. Tamar Kugler & Zvika Neeman & Nir Vulkan, 2003. "Markets Versus Negotiations: An Experimental Investigation," Discussion Paper Series dp319, The Federmann Center for the Study of Rationality, the Hebrew University, Jerusalem.
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