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Exchange Competition, Entry, and Welfare

Cespa, G. ORCID: 0000-0003-2466-6168 and Vives, X. (2021). Exchange Competition, Entry, and Welfare. The Review of Financial Studies,


We assess the consequences for market quality and welfare of different entry regimes and exchange pricing policies, integrating a microstructure modelwith a free-entry, exchange competition model where exchanges have marketpower in technological services. Free-entry delivers superior liquidity and welfare outcomes vis-`a-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.

Publication Type: Article
Additional Information: This is a pre-copyedited, author-produced version of an article accepted for publication in Review of Financial Studies following peer review. The version of record will be available online at:
Publisher Keywords: Market Fragmentation, Welfare, Endogenous Market Structure, Platform Competition, Cournot with Free Entry, Industrial Organization of Exchanges
Subjects: H Social Sciences > HG Finance
Departments: Business School > Finance
Date available in CRO: 07 Jun 2021 14:50
Date deposited: 7 June 2021
Date of acceptance: 6 June 2021
[img] Text - Accepted Version
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