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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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  10. Benaim, Michel & Weibull, Jörgen W., 2000. "Deterministic Approximation of Stochastic Evolution in Games," Working Paper Series 534, Research Institute of Industrial Economics, revised 30 Oct 2001.
  11. Dan Ariely & Axel Ockenfels & Alvin E. Roth, 2002. "An Experimental Analysis of Ending Rules in Internet Auctions," Papers on Strategic Interaction 2002-47, Max Planck Institute of Economics, Strategic Interaction Group.
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  18. Carlos Alós-Ferrer, 2000. "Finite Population Dynamics and Mixed Equilibria," Vienna Economics Papers 0008, University of Vienna, Department of Economics.
  19. Ran Spiegler, 2005. "Competition over Agents with Boundedly Rational Expectations," Levine's Bibliography 122247000000000535, UCLA Department of Economics.
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  28. 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.
  29. Young, H Peyton, 1993. "The Evolution of Conventions," Econometrica, Econometric Society, vol. 61(1), pages 57-84, January.
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