Exit, Survival, and Competitive Equilibrium in Dealer Markets
36 Pages Posted: 11 Aug 2013 Last revised: 6 Feb 2024
Date Written: August 9, 2013
Abstract
In this study we analyze dealer exit, survival, and competitive equilibrium in the NASDAQ Stock Market using data from a unique time period that entails major changes in regulatory and competitive environments. We decompose the forces that affect dealer survival into market factors and dealer attributes. Market factors encompass those variables that affect the demand for and profitability of dealer services as a whole. Variation in survival probability across dealers results mainly from their competitive advantages in business strategies, information, quote aggressiveness, access to order flow, and economies of scale. On the whole, our results suggest that dealer markets exhibit a Darwinian survival of the fittest.
Keywords: market structure, dealer competition, competitive advantages, quote aggressiveness, bid-ask spread, market share, survival probability, exit decision
JEL Classification: G14, G18
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