Network Economics with Application to Finance
Networks are common in financial services. Perfect competition does not decentralize optimality on a network, and coordination of participants expectations and investments is crucial for success. Financial exchange networks exhibit two kinds of externalities: liquidity enhancement by size expansion, and underpriced provision of market price information to outside rivals. We discuss the interaction of these externalities in alternative exchange network structures.
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|Publication status:||published in Financial Markets, Institutions & Instruments, vol. 2, no. 5, (December 1993), pp. 89-97.|
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