Discussion paper

DP13415 Exchange Competition, Entry, and Welfare

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.


Cespa, G and X Vives (2018), ‘DP13415 Exchange Competition, Entry, and Welfare‘, CEPR Discussion Paper No. 13415. CEPR Press, Paris & London. https://cepr.org/publications/dp13415