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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, doi: 10.1093/rfs/hhab101

Abstract

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 is available online at: https://doi.org/10.1093/rfs/hhab101.
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: Bayes Business School > Finance
Date available in CRO: 07 Jun 2021 14:50
Date deposited: 7 June 2021
Date of acceptance: 6 June 2021
Date of first online publication: 30 September 2021
URI: https://openaccess.city.ac.uk/id/eprint/26243
[img] Text - Accepted Version
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