DP5538 On the Evolution of Market Institutions: The Platform Design Paradox
|Author(s):||Carlos Alos-Ferrer, Georg Kirchsteiger, Markus Walzl|
|Publication Date:||March 2006|
|Keyword(s):||asymmetric rationality, evolution of trading platforms, learning, market institutions|
|JEL(s):||C72, D4, D83, L1|
|Programme Areas:||Industrial Organization|
|Link to this Page:||cepr.org/active/publications/discussion_papers/dp.php?dpno=5538|
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.