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Bid-ask spreads with indirect competition among specialists

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  • Gehrig, Thomas
  • Jackson, Matthew

Abstract

Research Joint Ventures and subsidies are important R&D policy instruments. The regulator, however, is unlikely to know all the relevant information to regulate R&D optimally. The extent to which there are appropriability problems is one such variable that is private information to the firms within the industry. In a duopoly setting we analyze the characteristics of a first-best and second-best R&D policy where the government can either allow Research Joint Ventures or not and give lump-sum subisides to the parties involved. The second-best R&D policy improves upon the policy of an unsophisicated government by integrating reports of the firms on their spillovers and the correlation between the R&D spillovers of the firms into its formulation.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Financial Markets.

Volume (Year): 1 (1998)
Issue (Month): 1 (April)
Pages: 89-119

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Handle: RePEc:eee:finmar:v:1:y:1998:i:1:p:89-119

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Web page: http://www.elsevier.com/locate/finmar

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References

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  1. Stahl, Dale O, II, 1988. "Bertrand Competition for Inputs and Walrasian Outcomes," American Economic Review, American Economic Association, vol. 78(1), pages 189-201, March.
  2. Stahl, Konrad, 1982. "Differentiated Products, Consumer Search, and Locational Oligopoly," Journal of Industrial Economics, Wiley Blackwell, vol. 31(1-2), pages 97-113, September.
  3. Thomas Ho & Hans Stoll, . "Optimal Dealer Pricing Under Transactions and Return Uncertainty," Rodney L. White Center for Financial Research Working Papers 27-79, Wharton School Rodney L. White Center for Financial Research.
  4. Hans R. Stoll, . "The Supply of Dealer Services in Securities Markets," Rodney L. White Center for Financial Research Working Papers 02-78, Wharton School Rodney L. White Center for Financial Research.
  5. Thomas Gehrig, 1993. "Intermediation in Search Markets," Discussion Papers 1058, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  6. Matthew O. Jackson & Sandro Brusco, 1997. "The Optimal Design of a Market," Discussion Papers 1186, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  7. Madhavan, Ananth & Smidt, Seymour, 1993. " An Analysis of Changes in Specialist Inventories and Quotations," Journal of Finance, American Finance Association, vol. 48(5), pages 1595-1628, December.
  8. Christie, William G & Harris, Jeffrey H & Schultz, Paul H, 1994. " Why Did NASDAQ Market Makers Stop Avoiding Odd-Eighth Quotes?," Journal of Finance, American Finance Association, vol. 49(5), pages 1841-60, December.
  9. Grossman, Sanford J & Miller, Merton H, 1988. " Liquidity and Market Structure," Journal of Finance, American Finance Association, vol. 43(3), pages 617-37, July.
  10. Dutta, Prajit K & Madhavan, Ananth, 1997. " Competition and Collusion in Dealer Markets," Journal of Finance, American Finance Association, vol. 52(1), pages 245-76, March.
  11. Christie, William G & Schultz, Paul H, 1994. " Why Do NASDAQ Market Makers Avoid Odd-Eighth Quotes?," Journal of Finance, American Finance Association, vol. 49(5), pages 1813-40, December.
  12. Admati, Anat R, 1985. "A Noisy Rational Expectations Equilibrium for Multi-asset Securities Markets," Econometrica, Econometric Society, vol. 53(3), pages 629-57, May.
  13. Caballe, Jordi & Krishnan, Murugappa, 1994. "Imperfect Competition in a Multi-security Market with Risk Neutrality," Econometrica, Econometric Society, vol. 62(3), pages 695-704, May.
  14. Hagerty, Kathleen, 1991. "Equilibrium Bid-Ask Spreads in Markets with Multiple Assets," Review of Economic Studies, Wiley Blackwell, vol. 58(2), pages 237-57, April.
  15. Hasabrouck, Joel & Sofianos, George, 1993. " The Trades of Market Makers: An Empirical Analysis of NYSE Specialists," Journal of Finance, American Finance Association, vol. 48(5), pages 1565-93, December.
  16. Dennert, Jurgen, 1993. "Price Competition between Market Makers," Review of Economic Studies, Wiley Blackwell, vol. 60(3), pages 735-51, July.
  17. Spence, Michael, 1976. "Product Selection, Fixed Costs, and Monopolistic Competition," Review of Economic Studies, Wiley Blackwell, vol. 43(2), pages 217-35, June.
  18. Ross, Stephen A., 1976. "The arbitrage theory of capital asset pricing," Journal of Economic Theory, Elsevier, vol. 13(3), pages 341-360, December.
  19. Lawrence R. Glosten & Paul R. Milgrom, 1983. "Bid, Ask and Transaction Prices in a Specialist Market with Heterogeneously Informed Traders," Discussion Papers 570, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  20. Garman, Mark B., 1976. "Market microstructure," Journal of Financial Economics, Elsevier, vol. 3(3), pages 257-275, June.
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Citations

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Cited by:
  1. Brusco, Sandro & Jackson, Matthew O., 1999. "The Optimal Design of a Market," Journal of Economic Theory, Elsevier, vol. 88(1), pages 1-39, September.
  2. Coughenour, Jay F. & Saad, Mohsen M., 2004. "Common market makers and commonality in liquidity," Journal of Financial Economics, Elsevier, vol. 73(1), pages 37-69, July.
  3. Goodfellow, Christiane & Schiereck, Dirk & Verrier, Tatjana, 2010. "Does screen trading weather the weather? A note on cloudy skies, liquidity, and computerized stock markets," International Review of Financial Analysis, Elsevier, vol. 19(2), pages 77-80, March.
  4. Corwin, Shane A., 2004. "Specialist performance and new listing allocations on the NYSE: an empirical analysis," Journal of Financial Markets, Elsevier, vol. 7(1), pages 27-51, January.
  5. Krause, Andreas, 2005. "Optimal stock allocation in specialist markets," Research in Economics, Elsevier, vol. 59(1), pages 23-39, March.
  6. Madhavan, Ananth, 2000. "Market microstructure: A survey," Journal of Financial Markets, Elsevier, vol. 3(3), pages 205-258, August.

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