Financial Industry Dynamics
33 Pages Posted: 28 Aug 2015
Date Written: August 26, 2015
We develop a dynamic model of entry, exit, and firm quality in the market for issuance and trading of complex financial securities. Firm quality has two dimensions; security production expertise, which creates a positive externality for other firms, and trading expertise, which allows firms to obtain more favorable prices when trading with other firms. We find that markets that have a greater scope for investment in trading expertise (information) also exhibit greater concentration, firm heterogeneity, fragility, and price dispersion.
Keywords: financial expertise, dynamic oligopoly
JEL Classification: G20,L13, L15
Suggested Citation: Suggested Citation