On the evolution of market institutions: The platform design paradox

Carlos Alós-Ferrer, Georg Kirchsteiger, Markus Walzl

Research output: Contribution to journalArticlepeer-review

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.

Original languageEnglish (US)
Pages (from-to)215-243
Number of pages29
JournalEconomic Journal
Volume120
Issue number543
DOIs
StatePublished - Mar 2010

ASJC Scopus subject areas

  • Economics and Econometrics

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