Customer Controlled Firms: The Case of Stock Exchanges

26 Pages Posted: 1 Dec 2000

Multiple version iconThere are 2 versions of this paper

Date Written: June 2000


In many industries there are firms whose shareholders are also customers. They have contrasting interests: they get more utility as the firm's profits increase but also if the prices of the good decreases as their private consumer surplus increases. An interesting example is in the stock-exchange industry given that the exchange shareholders are generally broker-dealers and listed companies. This paper shows that a customer-owned monopolist always achieves first-best social outcome, but in customer-controlled firms, profits are not necessarily maximized and minority shareholders are damaged. When customers have equal unit demand, less profits arise if they hold a share of the firm's capital lower than their proportion over the total number of customers. When customers have equal downward demand, the firm never maximizes profits; besides, if the share of capital of customer-owners is somewhat less than the weight of customer-owners over total customers, the firm will always price at 0. Customer-controlled stock exchanges are welfare efficient if their customers (listed firms, intermediaries, price vendors, etc) hold an amount of capital equal to their proportion over the total number of customers. They never price at the monopoly price and, thus, do not maximize profit. This finding casts some doubt on the policy of listing a stock-exchange company itself on exchanges.

Keywords: Stock-exchanges, governance, customer-controlled firms, demutualization

JEL Classification: G3, I3,

Suggested Citation

Di Noia, Carmine, Customer Controlled Firms: The Case of Stock Exchanges (June 2000). EFMA 2000 Athens. Available at SSRN: or

Carmine Di Noia (Contact Author)

ASSONIME ( email )

Piazza Venezia 11
ROMA, 00187

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