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Competition between Exchanges: A research Agenda

Author

Listed:
  • Estelle Cantillon
  • Pai-Ling Yin

Abstract

This paper describes open research questions related to the competition and market structure of financial exchanges and argues that only a combination of industrial organization and finance can satisfactorily attack these questions. Two examples are discussed to illustrate how the combination of these two approaches can significantly enrich the analysis: the “network externality puzzle”, which refers to the question of why trading for the same security is often split across trading venues, and the impact of the multi-sided character of financial exchanges on pricing and profitability.

Suggested Citation

  • Estelle Cantillon & Pai-Ling Yin, 2011. "Competition between Exchanges: A research Agenda," ULB Institutional Repository 2013/99386, ULB -- Universite Libre de Bruxelles.
  • Handle: RePEc:ulb:ulbeco:2013/99386
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    References listed on IDEAS

    as
    1. Biais, Bruno & Glosten, Larry & Spatt, Chester, 2005. "Market microstructure: A survey of microfoundations, empirical results, and policy implications," Journal of Financial Markets, Elsevier, vol. 8(2), pages 217-264, May.
    2. Degryse, Hans & Van Achter, Mark & Wuyts, Gunther, 2009. "Dynamic order submission strategies with competition between a dealer market and a crossing network," Journal of Financial Economics, Elsevier, vol. 91(3), pages 319-338, March.
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    4. Madhavan, Ananth, 1995. "Consolidation, Fragmentation, and the Disclosure of Trading Information," Review of Financial Studies, Society for Financial Studies, vol. 8(3), pages 579-603.
    5. P. Gomber & M. Gsell, 2006. "Catching Up with Technology - The Impact of Regulatory Changes on ECNs/MTFs and the Trading Venue Landscape in Europe," Competition and Regulation in Network Industries, Intersentia, vol. 7(4), pages 535-558, December.
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    7. Thierry Foucault & Christine A. Parlour, 2004. "Competition for Listings," RAND Journal of Economics, The RAND Corporation, vol. 35(2), pages 329-355, Summer.
    8. Bruno Biais & Richard C. Green, "undated". "The Microstructure of the Bond Market in the 20th Century," GSIA Working Papers 2005-E57, Carnegie Mellon University, Tepper School of Business.
    9. Glenn Ellison & Drew Fudenberg, 2003. "Knife-Edge or Plateau: When Do Market Models Tip?," The Quarterly Journal of Economics, Oxford University Press, vol. 118(4), pages 1249-1278.
    10. Igal Hendel & Aviv Nevo & François Ortalo-Magné, 2009. "The Relative Performance of Real Estate Marketing Platforms: MLS versus FSBOMadison.com," American Economic Review, American Economic Association, vol. 99(5), pages 1878-1898, December.
    11. Marc Rysman, 2009. "The Economics of Two-Sided Markets," Journal of Economic Perspectives, American Economic Association, vol. 23(3), pages 125-143, Summer.
    12. Thierry Foucault & Ohad Kadan & Eugene Kandel, 2013. "Liquidity Cycles and Make/Take Fees in Electronic Markets," Journal of Finance, American Finance Association, vol. 68(1), pages 299-341, February.
    13. Cantillon, Estelle & Yin, Pai-Ling, 2008. "Competition between Exchanges: Lessons from the Battle of the Bund," CEPR Discussion Papers 6923, C.E.P.R. Discussion Papers.
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    Citations

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    Cited by:

    1. repec:eee:quaeco:v:64:y:2017:i:c:p:196-214 is not listed on IDEAS
    2. Jean-Edouard Colliard & Thierry Foucault, 2012. "Trading Fees and Efficiency in Limit Order Markets," Review of Financial Studies, Society for Financial Studies, vol. 25(11), pages 3389-3421.
    3. Kei Kawakami, 2014. "Information Aggregation and Optimal Market Size," Department of Economics - Working Papers Series 1182, The University of Melbourne.
    4. Kei Kawakami, 2015. "Welfare Consequences of Information Aggregation and Optimal Market Size," Department of Economics - Working Papers Series 1189, The University of Melbourne.
    5. repec:eee:ecmode:v:65:y:2017:i:c:p:9-17 is not listed on IDEAS
    6. Nijman, Luuk, 2012. "The impact of the new wave of financial regulation for European energy markets," Energy Policy, Elsevier, vol. 47(C), pages 468-477.
    7. Kei Kawakami, 2013. "Optimal Market Size," Department of Economics - Working Papers Series 1168, The University of Melbourne.
    8. Hans Degryse & Frank de Jong & Vincent van Kervel, 2015. "The Impact of Dark Trading and Visible Fragmentation on Market Quality," Review of Finance, European Finance Association, vol. 19(4), pages 1587-1622.
    9. Castelle, Michael & Millo, Yuval & Beunza, Daniel & Lubin, David C., 2016. "Where do electronic markets come from? Regulation and the transformation of financial exchanges," LSE Research Online Documents on Economics 68650, London School of Economics and Political Science, LSE Library.

    More about this item

    Keywords

    network effects; two-sided market; tipping; competition; market structure; market microstructure;

    JEL classification:

    • G29 - Financial Economics - - Financial Institutions and Services - - - Other
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L40 - Industrial Organization - - Antitrust Issues and Policies - - - General
    • L15 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Information and Product Quality

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