Citation

Discussion Paper Details

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Title: Exchange Competition, Entry, and Welfare

Author(s): Giovanni Cespa and Xavier Vives

Publication Date: December 2018

Keyword(s): Cournot with free entry, Endogenous Market Structure, Industrial Organization of Exchanges, market fragmentation, platform competition and welfare

Programme Area(s): Financial Economics

Abstract: We assess the consequences for market quality and welfare of different entry regimes and exchange pricing policies, integrating 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-à-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.

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Bibliographic Reference

Cespa, G and Vives, X. 2018. 'Exchange Competition, Entry, and Welfare'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=13415