Organizational Design, Competition, and Financial Exchanges

24 Pages Posted: 26 Dec 2010 Last revised: 11 Jun 2014

Steffen Juranek

Norwegian School of Economics (NHH) - Department of Business and Management Science

Uwe Walz

Goethe University Frankfurt - Institute of Economics; Center For Financial Studies (CFS); Goethe University Frankfurt - Research Center SAFE

Date Written: May 25, 2014

Abstract

We investigate the incentives for vertical and horizontal integration in the financial securities service industry. Our analysis shows that the incentives for vertical integration depend on industry characteristics revealing, for example, that incentives increase in the demand for liquidity. Decentralized decisions might lead to an industry equilibrium with lower aggregate profits for all participants. This problem can be overcome by horizontal integration. We link our results to recent regulatory and institutional developments, and argue that multilateral trading facilities and algorithmic trading lead to lower incentives for vertical integration whereas the regulatory push towards mandatory clearing of over-the-counter trades increases the profitability of vertical integration.

Keywords: Vertical Integration, Horizontal Integration, Competition, Trading, Settlement

JEL Classification: G15, L13, L22

Suggested Citation

Juranek, Steffen and Walz, Uwe, Organizational Design, Competition, and Financial Exchanges (May 25, 2014). Available at SSRN: https://ssrn.com/abstract=1730152 or http://dx.doi.org/10.2139/ssrn.1730152

Steffen Juranek (Contact Author)

Norwegian School of Economics (NHH) - Department of Business and Management Science ( email )

Helleveien 30
Bergen, NO-5045
Norway

Uwe Walz

Goethe University Frankfurt - Institute of Economics ( email )

Postfach 81
D-60054 Frankfurt
Germany

Center For Financial Studies (CFS) ( email )

Grüneburgplatz 1
Frankfurt am Main, 60323
Germany

Goethe University Frankfurt - Research Center SAFE ( email )

(http://www.safe-frankfurt.de)
Theodor-W.-Adorno-Platz 3
Frankfurt am Main, 60323
Germany

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