Exchange competition, entry, and welfare

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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
Bibliographic citation: CESPA, G., VIVES, X. (2022). Exchange competition, entry, and welfare. The Review of Financial Studies, 35 (5), 2570-2624. doi:10.1093/rfs/hhab101.

Reference: 10.1093/rfs/hhab101 (DOI)
Date: 01/05/2022
Author(s): Giovanni Cespa; Xavier Vives
Document type: Article in Journal (refereed)
Department: Economics
Languages: English