On the Evolution of Market Institutions: The Platform Design Paradox

29 Pages Posted: 10 Feb 2010  

Carlos Alós-Ferrer

University of Cologne - Department of Economics

Georg Kirchsteiger

Université Libre de Bruxelles (ULB) - European Center for Advanced Research in Economics and Statistics (ECARES); CESifo (Center for Economic Studies and Ifo Institute)

Markus Walzl

Bamberg University - Department of Economics

Multiple version iconThere are 3 versions of this paper

Date Written: 2009-06-15

Abstract

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.

Suggested Citation

Alós-Ferrer, Carlos and Kirchsteiger, Georg and Walzl, Markus, On the Evolution of Market Institutions: The Platform Design Paradox (2009-06-15). The Economic Journal, Vol. 120, Issue 543, pp. 215-243, March 2010. Available at SSRN: https://ssrn.com/abstract=1550481 or http://dx.doi.org/10.1111/j.1468-0297.2009.02297.x

Carlos Alos-Ferrer (Contact Author)

University of Cologne - Department of Economics ( email )

Cologne, 50923
Germany

Georg Kirchsteiger

Université Libre de Bruxelles (ULB) - European Center for Advanced Research in Economics and Statistics (ECARES) ( email )

Av. F. D. Roosevelt 50
CP 114
Brussels, B-1050
Belgium

HOME PAGE: http://www.ecares.org/people/members/kirchsteiger/kirchsteiger/home.htm

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

Markus Walzl

Bamberg University - Department of Economics ( email )

Kirschaeckerstrasse 39
Bamberg, 96045
Germany

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