Working Paper: CEPR ID: DP5538
Authors: Carlos Alsferrer; 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.
Keywords: Asymmetric Rationality; Evolution of Trading Platforms; Learning; Market Institutions
JEL Codes: C72; D4; D83; L1
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Competition among market designers (D49) | Emergence of non-market clearing platforms (D26) |
| Emergence of non-market clearing platforms (D26) | Prices above the market-clearing level (D49) |
| Multiple designers introducing at least one non-market clearing platform (D49) | Traders coordinate on non-market clearing platforms (D26) |
| Traders coordinate on non-market clearing platforms (D26) | Non-competitive market outcomes (L13) |
| Monopolistic market designer (D42) | Introduction of market-clearing platform (D47) |