The Liquidity Advantage of the Quote-Driven Market: Evidence from the Betting Industry

University of Zurich, Department of Business Administration, UZH Business Working Paper No. 342

27 Pages Posted: 23 Dec 2013 Last revised: 16 Oct 2014

See all articles by Raphael Flepp

Raphael Flepp

University of Zurich - Department of Business Administration (IBW)

Stephan Nüesch

University of Muenster

Egon P. Franck

University of Zurich - Department of Business Administration (IBW)

Date Written: October 1, 2014

Abstract

Even though betting exchanges are considered to be the superior business model in the betting industry due to less operational risk and lower information costs, bookmakers continue to be successful. We explain the puzzling coexistence of these two market structures with the advantage of guaranteed liquidity in the bookmaker market. Using matched panel data of over 1.8 million bookmaker and betting exchange odds for 17,410 soccer matches played worldwide, we find that the bookmaker offers higher odds and bettor returns than the betting exchange when liquidity at the betting exchange is low.

Keywords: Market Structure, Liquidity, Betting Industry

JEL Classification: D40, L10, L83

Suggested Citation

Flepp, Raphael and Nüesch, Stephan and Franck, Egon P., The Liquidity Advantage of the Quote-Driven Market: Evidence from the Betting Industry (October 1, 2014). University of Zurich, Department of Business Administration, UZH Business Working Paper No. 342. Available at SSRN: https://ssrn.com/abstract=2371185 or http://dx.doi.org/10.2139/ssrn.2371185

Raphael Flepp (Contact Author)

University of Zurich - Department of Business Administration (IBW) ( email )

Plattenstrasse 14
Zurich, 8032
Switzerland

Stephan Nüesch

University of Muenster ( email )

Schlossplatz 2
Muenster, D-48149
Germany

HOME PAGE: http://www.wiwi.uni-muenster.de/uf

Egon P. Franck

University of Zurich - Department of Business Administration (IBW) ( email )

Plattenstrasse 14
Zurich 8032
Switzerland
+41 1 634 28 45 (Phone)

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