Exchange Competition, Entry, and Welfare
76 Pages Posted: 7 Jan 2019 Last revised: 14 Jul 2021
Date Written: December 2018
We assess the consequences for market quality and welfare of different entry regimes and exchange pricing policies, integrating a microstructure model with a free-entry, exchange competition model where exchanges have market power in technological services. Free-entry delivers superior liquidity and welfare outcomes vis-Ã -vis an unregulated monopoly, but entry can be excessive or insufficient. Depending on the extent of the monopolist's technological services undersupply compared to the first best, a planner can achieve a higher welfare controlling entry or platform fees.
JEL Classification: G10, G12, G14
Suggested Citation: Suggested Citation