Competition for Listings

45 Pages Posted: 4 Jun 1999

See all articles by Thierry Foucault

Thierry Foucault

HEC Paris - Finance Department

Christine A. Parlour

University of California, Berkeley - Finance Group

Abstract

We develop a model in which two profit maximizing exchanges compete for IPO listings. They choose the listing fees paid by firms wishing to go public and control the trading costs incurred by investors. All firms prefer lower costs, however firms differ in how they value a decrease in trading costs. Hence, in equilibrium, the exchanges obtain positive expected profits by charging different trading fees and different listing fees. As a result, firms that list on different exchanges have different characteristics. The model has testable implications for the cross-sectional characteristics of IPOs' on different quality exchanges and the relationship between the level of trading costs and listing fees. We also find that competition does not guarantee that exchanges choose welfare maximizing trading rules. In some cases, welfaire is larger with a monopolist exchange than with oligopolist exchanges.

JEL Classification: G32, G19, G21, G34

Suggested Citation

Foucault, Thierry and Parlour, Christine A., Competition for Listings. Available at SSRN: https://ssrn.com/abstract=163368 or http://dx.doi.org/10.2139/ssrn.163368

Thierry Foucault

HEC Paris - Finance Department ( email )

1 rue de la Liberation
Jouy-en-Josas Cedex, 78351
France
(33)139679569 (Phone)
(33)139677085 (Fax)

HOME PAGE: http://thierryfoucault.com/

Christine A. Parlour

University of California, Berkeley - Finance Group ( email )

Haas School of Business
545 Student Services Building
Berkeley, CA 94720
United States
510-643-9391 (Phone)

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