Exchange Competition, Entry, and Welfare

61 Pages Posted: 6 Nov 2019

See all articles by Giovanni Cespa

Giovanni Cespa

Bayes Business School; Bayes 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)

Multiple version iconThere are 3 versions of this paper

Date Written: March 2019

Abstract

We integrate a market microstructure model with an exchange competition model with entry in which exchanges supply technological services that enhance market participation, and have market power. We find that technological services can be strategic substitutes or complements in platform competition. Free entry of platforms delivers a superior outcome in terms of liquidity and (generally) welfare compared to the case of an unregulated monopoly. Controlling entry or, even better, platform fees may serve as an instrument to limit market power, further increasing welfare. The market may deliver excessive or insufficient entry.

Keywords: market fragmentation, welfare, endogenous market structure, platform competition, Cournot with free entry, industrial organization of exchanges

JEL Classification: G100, G120, G140

Suggested Citation

Cespa, Giovanni and Cespa, Giovanni and Vives, Xavier, Exchange Competition, Entry, and Welfare (March 2019). Available at SSRN: https://ssrn.com/abstract=3338786 or http://dx.doi.org/10.2139/ssrn.3338786

Giovanni Cespa (Contact Author)

Bayes Business School ( email )

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

Bayes Business School ( email )

United Kingdom

Centre for Economic Policy Research (CEPR) ( email )

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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