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Title: On the Evolution of Market Institutions: The Platform Design Paradox

Author(s): Carlos Alos-Ferrer, Georg Kirchsteiger and Markus Walzl

Publication Date: March 2006

Keyword(s): asymmetric rationality, evolution of trading platforms, learning and market institutions

Programme Area(s): Industrial Organization

Abstract: 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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Bibliographic Reference

Alos-Ferrer, C, Kirchsteiger, G and Walzl, M. 2006. 'On the Evolution of Market Institutions: The Platform Design Paradox'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=5538