29 Pages Posted: 10 Feb 2010
Date Written: 2009-06-15
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: 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
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