Social structure and reputation: the NASDAQ case study
AbstractIn 1996, two investigations conducted by the Securities and Exchange Commission and the American Department of Justice reported non-competitive practices among market makers on the NASDAQ. These reports also mentioned the influence of the NASDAQ social structure on market makers' behaviours. Most market makers adopted social norms in order to increase significantly their income at the expense of the customers. This paper aims to explain the rise and long-term effects of non-competitive practices, through the integration of a concrete view of "embeddedness" (Granovetter, 1985). We propose the use of game theory tools to achieve this goal. A rereading of Kreps' model of reputation sheds light on its structural dimension and illustrates the way social structure governs individual behaviours.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by HAL in its series Post-Print with number halshs-00163731.
Date of creation: 2005
Date of revision:
Publication status: Published, Socio-Economic Review, 2005, 3, 417-436
Note: View the original document on HAL open archive server: http://halshs.archives-ouvertes.fr/halshs-00163731/en/
Contact details of provider:
Web page: http://hal.archives-ouvertes.fr/
NASDAQ; non-competitive behaviours; embeddedness; social structure; game theory; reputation; trust;
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Kandori, Michihiro, 1992.
"Social Norms and Community Enforcement,"
Review of Economic Studies,
Wiley Blackwell, vol. 59(1), pages 63-80, January.
- Elster, Jon, 1989. "Social Norms and Economic Theory," Journal of Economic Perspectives, American Economic Association, vol. 3(4), pages 99-117, Fall.
- 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.
- 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.
- Barclay, Michael J., 1997. "Bid-ask spreads and the avoidance of odd-eighth quotes on Nasdaq: An examination of exchange listings," Journal of Financial Economics, Elsevier, vol. 45(1), pages 35-60, July.
- Hirschman, Albert O., 1985.
"Against Parsimony: Three Easy Ways of Complicating some Categories of Economic Discourse,"
Economics and Philosophy,
Cambridge University Press, vol. 1(01), pages 7-21, April.
- Hirschman, Albert O, 1984. "Against Parsimony: Three Easy Ways of Complicating Some Categories of Economic Discourse," American Economic Review, American Economic Association, vol. 74(2), pages 89-96, May.
- 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.
- Samuel Bowles & Herbert Gintis, 2002.
"Social Capital and Community Governance,"
Royal Economic Society, vol. 112(483), pages 419-436, November.
- Bernstein, Lisa, 1992. "Opting Out of the Legal System: Extralegal Contractual Relations in the Diamond Industry," The Journal of Legal Studies, University of Chicago Press, vol. 21(1), pages 115-57, January.
- Armen A. Alchian & Harold Demsetz, 1971.
"Production, Information Costs and Economic Organizations,"
UCLA Economics Working Papers
10A, UCLA Department of Economics.
- Alchian, Armen A & Demsetz, Harold, 1972. "Production , Information Costs, and Economic Organization," American Economic Review, American Economic Association, vol. 62(5), pages 777-95, December.
- Grossman, Sanford J, et al, 1997. "Clustering and Competition in Asset Markets," Journal of Law and Economics, University of Chicago Press, vol. 40(1), pages 23-60, April.
- Simon, Herbert A, 1978. "Rationality as Process and as Product of Thought," American Economic Review, American Economic Association, vol. 68(2), pages 1-16, May.
- Kandel, Eugene & Marx, Leslie M., 1997. "Nasdaq market structure and spread patterns," Journal of Financial Economics, Elsevier, vol. 45(1), pages 61-89, July.
- Klein, Benjamin & Leffler, Keith B, 1981. "The Role of Market Forces in Assuring Contractual Performance," Journal of Political Economy, University of Chicago Press, vol. 89(4), pages 615-41, August.
- Klein, Benjamin, 1980. "Transaction Cost Determinants of "Unfair" Contractual Arrangements," American Economic Review, American Economic Association, vol. 70(2), pages 356-62, May.
- Breton,Albert & Wintrobe,Ronald, 2008. "The Logic of Bureaucratic Conduct," Cambridge Books, Cambridge University Press, number 9780521071727, November.
- Demsetz, Harold, 1997. "Limit orders and the alleged Nasdaq collusion," Journal of Financial Economics, Elsevier, vol. 45(1), pages 91-95, July.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (CCSD).
If references are entirely missing, you can add them using this form.