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On the Evolution of Market Institutions: The Platform Design Paradox

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  • Carlos Alós-Ferrer
  • Georg Kirchsteiger
  • Markus Walzl

Abstract

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.
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  • Carlos Alós-Ferrer & Georg Kirchsteiger & Markus Walzl, 2010. "On the Evolution of Market Institutions: The Platform Design Paradox," ULB Institutional Repository 2013/149586, ULB -- Universite Libre de Bruxelles.
    • Handle: RePEc:ulb:ulbeco:2013/149586
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    Cited by:

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    2. Gary Charness & Francesco Feri & Miguel A. Meléndez-Jiménez & Matthias Sutter, 2023. "An Experimental Study on the Effects of Communication, Credibility, and Clustering in Network Games," The Review of Economics and Statistics, MIT Press, vol. 105(6), pages 1530-1543, November.
    3. Fei Shi, 2015. "Long-run technology choice with endogenous local capacity," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 59(2), pages 377-399, June.
    4. Tsakas, Nikolas, 2017. "Diffusion by imitation: The importance of targeting agents," Journal of Economic Behavior & Organization, Elsevier, vol. 139(C), pages 118-151.
    5. Carlos Alós-Ferrer & Nick Netzer, 2015. "Robust stochastic stability," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 58(1), pages 31-57, January.
    6. Alós-Ferrer, Carlos & Buckenmaier, Johannes, 2017. "Trader matching and the selection of market institutions," Journal of Mathematical Economics, Elsevier, vol. 69(C), pages 118-127.
    7. Olga A. Rud & Jean Paul Rabanal, 2018. "Evolution of markets: a simulation with centralized, decentralized and posted offer formats," Journal of Evolutionary Economics, Springer, vol. 28(3), pages 667-689, August.
    8. Edoardo Gaffeo & Mauro Gallegati & Lucio Gobbi, 2022. "Endogenous clearinghouse formation in payment networks," Review of Evolutionary Political Economy, Springer, vol. 3(1), pages 109-136, April.
    9. Carlos Alós-Ferrer & Georg Kirchsteiger, 2015. "Learning and market clearing: theory and experiments," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 60(2), pages 203-241, October.
    10. Carlos Alós-Ferrer & Johannes Buckenmaier & Georg Kirchsteiger, 2022. "Do traders learn to select efficient market institutions?," Experimental Economics, Springer;Economic Science Association, vol. 25(1), pages 203-228, February.
    11. Carlos Alós-Ferrer & Johannes Buckenmaier & Georg Kirchsteiger, 2020. "Do Traders Learn to Select Efficient Market Institutions?," ECON - Working Papers 364, Department of Economics - University of Zurich.
    12. Simon Weidenholzer, 2010. "Coordination Games and Local Interactions: A Survey of the Game Theoretic Literature," Games, MDPI, vol. 1(4), pages 1-35, November.
    13. Alós-Ferrer, Carlos & Kirchsteiger, Georg, 2017. "Market selection by boundedly-rational traders under constant returns to scale," Economics Letters, Elsevier, vol. 153(C), pages 51-53.
    14. Jonathan Newton, 2018. "Evolutionary Game Theory: A Renaissance," Games, MDPI, vol. 9(2), pages 1-67, May.
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    More about this item

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • D4 - Microeconomics - - Market Structure, Pricing, and Design
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance

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