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Exit, Survival, and Competitive Equilibrium in Dealer Markets

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  • Kee H. Chung
  • Chairat Chuwonganant

Abstract

In this study we analyze dealer exit, survival, and competitive equilibrium in the NASDAQ Stock Market using data from a unique period that entails major changes in regulatory and competitive environments. We decompose the forces that affect dealer survival into market factors and dealer attributes. Market factors encompass those variables that affect the demand for and profitability of dealer services as a whole. Variation in survival probability across dealers results mainly from their competitive advantages in business strategies, information, quote aggressiveness, access to order flow, and economies of scale. On the whole, our results suggest that dealer markets exhibit a Darwinian survival of the fittest.

Suggested Citation

  • Kee H. Chung & Chairat Chuwonganant, 2014. "Exit, Survival, and Competitive Equilibrium in Dealer Markets," The Financial Review, Eastern Finance Association, vol. 49(3), pages 435-460, August.
    • Handle: RePEc:bla:finrev:v:49:y:2014:i:3:p:435-460
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    File URL: http://hdl.handle.net/10.1111/fire.12050
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