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Abstract

We assess the consequences for market quality and welfare of different entry regimes and exchange pricing policies. To do so, we integrate a microstructure model with a free-entry, exchange competition model where exchanges have market power in technological services. Free-entry delivers superior liquidity and welfare outcomes vis-á-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. Review of Financial Studies, forthcoming

Publication Type:	Article
Additional Information:	This is a pre-copyedited, author-produced version of an article accepted for publication in The Review of Financial Studies following peer review. The version of record Giovanni Cespa, Xavier Vives, Exchange Competition, Entry, and Welfare, The Review of Financial Studies, Volume 35, Issue 5, May 2022, Pages 2570–2624 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 H Social Sciences > HJ Public Finance
Departments:	Bayes Business School Bayes Business School > Finance
SWORD Depositor:	Symplectic Administrator

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