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Market Power in a Securities Market with Endogenous Information

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  • Mark S. Grinblatt
  • Stephen A. Ross

Abstract

A rational expectations model of a securities market is developed in which one agent, the monopolist, behaves like a Stackelberg leader and other agents behave competitively. Two information structures, one in which each agent has identical information and the other in which each agent has independent information are examined. Equilibrium is shown to exist and is characterized in both cases, but monopoly has a significant effect on the equilibrium only in the latter. The optimal strategy of the Stackelberg leader is also studied, and it is shown that he will not randomize his strategy by adding white noise to his demand function, even though this obfuscates the information content of the market price.

Suggested Citation

  • Mark S. Grinblatt & Stephen A. Ross, 1985. "Market Power in a Securities Market with Endogenous Information," The Quarterly Journal of Economics, Oxford University Press, vol. 100(4), pages 1143-1167.
  • Handle: RePEc:oup:qjecon:v:100:y:1985:i:4:p:1143-1167.
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    File URL: http://hdl.handle.net/10.2307/1885678
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    Citations

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    Cited by:

    1. Suleyman Basak & Anna Pavlova, 2004. "Monopoly power and the firm’s valuation: a dynamic analysis of short versus long-term policies," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 24(3), pages 503-530, October.
    2. Agastya, Murali, 2003. "Insider Trading, Informational Effciency and Allocative Effciency," Working Papers 6, University of Sydney, School of Economics.
    3. Biais, Bruno & Foucault, Thierry, 1993. "Asymétrie d’information et marchés financiers : une synthèse de la littérature récente," L'Actualité Economique, Société Canadienne de Science Economique, vol. 69(1), pages 8-44, mars.
    4. von Beschwitz, Bastian & Chuprinin, Oleg & Massa, Massimo, 2015. "Why Do Short Sellers Like Qualitative News?," International Finance Discussion Papers 1149, Board of Governors of the Federal Reserve System (U.S.).
    5. Basak, Suleyman & Pavlova, Anna, 2004. "Monopoly Power and the Firm€ٳ Valuation:," Working papers 4234-01, Massachusetts Institute of Technology (MIT), Sloan School of Management.
    6. Estrada, Javier, 1994. "Insider trading: regulation, securities markets, and welfare under risk neutrality," UC3M Working papers. Economics 2922, Universidad Carlos III de Madrid. Departamento de Economía.
    7. Estrada, Javier, 1995. "Insider trading: regulation, securities markets, and welfare under risk aversion," UC3M Working papers. Economics 3901, Universidad Carlos III de Madrid. Departamento de Economía.
    8. Sherrill Shaffer & Laura Spierdijk, 2019. "Measuring multi-product banks' market power using the Lerner index," CAMA Working Papers 2019-17, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
    9. Krebs, Tom, 2007. "Rational expectations equilibrium and the strategic choice of costly information," Journal of Mathematical Economics, Elsevier, vol. 43(5), pages 532-548, June.
    10. Branko Urosevic, 2001. "Moral hazard and dynamics of insider ownership stakes," Economics Working Papers 787, Department of Economics and Business, Universitat Pompeu Fabra, revised Oct 2004.
    11. Phong T. H. Ngo, 2006. "International Prudential Regulation, Regulatory Risk and the Cost of Bank Capital," ANU Working Papers in Economics and Econometrics 2006-463, Australian National University, College of Business and Economics, School of Economics.

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