Endogenous bourse structures
We propose a novel approach to the market microstructure theory, where a bourse is a club that facilitates asset trading among its members. Under the new perspective of club theory, we provide an equilibrium setting where traders must belong to at least one bourse to trade assets. For this bourse economy, we show that equilibrium exists generically, and give positive predictions regarding the formation of a large unique bourse, and/or a bourse with complete markets. We also give examples that illustrate how traders’ attributes and bourse formation costs explain bourse size and composition, market incompleteness, and multiple memberships.
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- Mas-Colell, Andreu & Nachbar, John H., 1991. "On the finiteness of the number of critical equilibria, with an application to random selections," Journal of Mathematical Economics, Elsevier, vol. 20(4), pages 397-409.
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