IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Login to save this paper or follow this series

Competition and Integration among Stock Exchanges in Europe: Network Effects, Implicit Mergers and Remote Access

  • Carmine di Noia
Registered author(s):

    The economic theory of network externalities and a simple game theoretical framework are used to explore the issue of competition among stock exchanges and the possibility of consolidation in the European stock-exchange industry, among the different exchanges. The main features of this paper are the following: the treatment of exchanges as firms; the application of network externalities to study competition among exchanges; the extension of network externalities, through implementing "cross-network" effects; the existence of equilibria where exchanges may decide, even unilaterally, to achieve full com-patibility through implicit mergers and remote access, "specializing" only in trading or listing services. One implication is that consolidation of European exchanges into one may occur with a welfare efficient outcome or with a lock-in to a Pareto-inferior equilibrium. This is due to the network externalities and the different starting points of the various exchanges. "Implicit mergers" among exchanges together with remote access are always weakly (in half of the cases, strictly) more efficient than the actual competition, provided that the fixed cost of compatibility are sufficiently low. This finding sheds light also on the existence and efficacy, especially in the USA, of automated trading systems, which can be seen as exchanges specialized in trading services.

    If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

    File URL: http://fic.wharton.upenn.edu/fic/papers/98/9803.pdf
    Download Restriction: no

    Paper provided by Wharton School Center for Financial Institutions, University of Pennsylvania in its series Center for Financial Institutions Working Papers with number 98-03.

    as
    in new window

    Length:
    Date of creation: Jan 1998
    Date of revision:
    Handle: RePEc:wop:pennin:98-03
    Contact details of provider: Postal: 3301 Steinberg Hall-Dietrich Hall, 3620 Locust Walk, Philadelphia, PA 19104.6367
    Phone: 215.898.1279
    Fax: 215.573.8757
    Web page: http://fic.wharton.upenn.edu/fic/Email:


    More information through EDIRC

    References listed on IDEAS
    Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

    as in new window
    1. Katz, Michael L & Shapiro, Carl, 1985. "Network Externalities, Competition, and Compatibility," American Economic Review, American Economic Association, vol. 75(3), pages 424-40, June.
    2. Nicholas Economides, 1997. "The Economics of Networks," Brazilian Electronic Journal of Economics, Department of Economics, Universidade Federal de Pernambuco, vol. 1(0), December.
    3. Joseph Farrell & Garth Saloner, 1985. "Installed Base and Compatibility With Implications for Product Preannouncements," Working papers 385, Massachusetts Institute of Technology (MIT), Department of Economics.
    4. Joseph Farrell & Garth Saloner, 1985. "Standardization, Compatibility, and Innovation," RAND Journal of Economics, The RAND Corporation, vol. 16(1), pages 70-83, Spring.
    5. Witt, Ulrich, 1997. ""Lock-in" vs. "critical masses" -- Industrial change under network externalities," International Journal of Industrial Organization, Elsevier, vol. 15(6), pages 753-773, October.
    6. Franklin Allen & Anthony M. Santomero, 1996. "The Theory of Financial Intermediation," Center for Financial Institutions Working Papers 96-32, Wharton School Center for Financial Institutions, University of Pennsylvania.
    Full references (including those not matched with items on IDEAS)

    This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

    When requesting a correction, please mention this item's handle: RePEc:wop:pennin:98-03. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Thomas Krichel)

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If references are entirely missing, you can add them using this form.

    If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.