Competition and Product Quality: Fake Trading on Crypto Exchanges

72 Pages Posted: 12 Jan 2021 Last revised: 15 Mar 2021

See all articles by Dan Amiram

Dan Amiram

Tel Aviv University - Coller School of Management

Evgeny Lyandres

Tel Aviv University

Daniel Rabetti

Tel Aviv University - Coller School of Management

Date Written: March 14, 2020

Abstract

How competition affects product quality and how product quality choices impact firms' operating performance are open empirical questions. We use a setting that is especially suitable to answering these questions: cryptographic exchanges, on which product quality is inversely related to fake (inflated) trading volume. We examine the effects of competition among crypto exchanges on their trading volume inflation and the impact of fake trading on exchanges' operating performance. We develop statistical measures to detect fake trading, which we validate in several ways and use in analyzing determinants and consequences of trading volume inflation. Various static and dynamic competition measures are positively associated with measures of fake trading at both the exchange and exchange-currency pair levels. Exchanges that inflate trading volume tend to succeed in misleading investors in the short run but are punished in the long run, consistent with the tradeoff between short-lived increases in rents and future losses due to damaged reputation.

Keywords: Crypto exchanges, fake trading, competition, product quality, reputation

JEL Classification: G23, L13

Suggested Citation

Amiram, Dan and Lyandres, Evgeny and Rabetti, Daniel, Competition and Product Quality: Fake Trading on Crypto Exchanges (March 14, 2020). Available at SSRN: https://ssrn.com/abstract=3745617 or http://dx.doi.org/10.2139/ssrn.3745617

Dan Amiram

Tel Aviv University - Coller School of Management ( email )

Tel Aviv
Israel

Evgeny Lyandres (Contact Author)

Tel Aviv University ( email )

Ramat Aviv
Tel-Aviv, 6997801
Israel
6400241 (Fax)

Daniel Rabetti

Tel Aviv University - Coller School of Management ( email )

Ramat Aviv
Tel-Aviv, 6997801
Israel
972-54-9107234 (Phone)

HOME PAGE: http://https://en-coller.tau.ac.il/

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