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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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