Discussion paper

DP5538 On the Evolution of Market Institutions: The Platform Design Paradox

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.

£6.00
Citation

Kirchsteiger, G, C Alos-Ferrer and M Walzl (2006), ‘DP5538 On the Evolution of Market Institutions: The Platform Design Paradox‘, CEPR Discussion Paper No. 5538. CEPR Press, Paris & London. https://cepr.org/publications/dp5538