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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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Paper provided by ULB -- Universite Libre de Bruxelles in its series ULB Institutional Repository with number 2013/149586.

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Date of creation: Mar 2010
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Publication status: Published in: Economic journal (2010) v.120 n° 543,p.215-243
Handle: RePEc:ulb:ulbeco:2013/149586
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