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Exchange Competition, Entry, and Welfare

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  • Vives, Xavier
  • Cespa, Giovanni

Abstract

We assess the consequences for market quality and welfare of different entry regimes and exchange pricing policies, integrating a microstructure model with a free-entry, exchange competition model where exchanges have market power in technological services. Free-entry delivers superior liquidity and welfare outcomes vis-Ã -vis an unregulated monopoly, but entry can be excessive or insufficient. Depending on the extent of the monopolist's technological services undersupply compared to the first best, a planner can achieve a higher welfare controlling entry or platform fees.

Suggested Citation

  • Vives, Xavier & Cespa, Giovanni, 2018. "Exchange Competition, Entry, and Welfare," CEPR Discussion Papers 13415, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:13415
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    Cited by:

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    More about this item

    Keywords

    Market fragmentation; Welfare; Endogenous market structure; Platform competition; Cournot with free entry; Industrial organization of exchanges;
    All these keywords.

    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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