Exchange Competition, Entry, and Welfare

68 Pages Posted: 28 Jan 2019 Last revised: 4 Nov 2020

See all articles by Giovanni Cespa

Giovanni Cespa

City University London - Sir John Cass Business School; Centre for Economic Policy Research (CEPR)

Xavier Vives

University of Navarra - IESE Business School; Universitat Pompeu Fabra (UPF); Centre for Economic Policy Research (CEPR); CESifo (Center for Economic Studies and Ifo Institute for Economic Research)

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Date Written: November 3, 2020

Abstract

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. We find that services can be strategic substitutes or complements. Free-entry delivers superior liquidity and welfare outcomes vis-a-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.

Keywords: Market Fragmentation, Welfare, Endogenous Market Structure, Platform Competition, Cournot with Free Entry, Industrial Organization of Exchanges

JEL Classification: G10, G12, G14

Suggested Citation

Cespa, Giovanni and Vives, Xavier, Exchange Competition, Entry, and Welfare (November 3, 2020). Available at SSRN: https://ssrn.com/abstract=3316784 or http://dx.doi.org/10.2139/ssrn.3316784

Giovanni Cespa (Contact Author)

City University London - Sir John Cass Business School ( email )

106 Bunhill Row
London, EC1Y 8TZ
United Kingdom
+44(0)2040708704 (Phone)

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Xavier Vives

University of Navarra - IESE Business School ( email )

Avenida Pearson 21
Barcelona, 08034
Spain

HOME PAGE: http://wwwapp.iese.edu/faculty/facultyDetail.asp?lang=en&prof=xv

Universitat Pompeu Fabra (UPF) ( email )

Ramon Trias Fargas, 25-27
Barcelona, 08005
Spain

Centre for Economic Policy Research (CEPR)

London
United Kingdom

CESifo (Center for Economic Studies and Ifo Institute for Economic Research) ( email )

Poschinger Str. 5
Munich, DE-81679
Germany

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