Electronic Derivatives Exchanges: Implicit Mergers, Network Externalities and Standardization

QUARTERLY REVIEW OF ECONOMICS AND FINANCE, Volume 35 Number 2, Summer 1995

Posted: 10 Oct 1998

See all articles by Ian Domowitz

Ian Domowitz

ITG, Inc.; National Bureau of Economic Research (NBER)

Abstract

The economic theory of network externalities is used to explore the possibility of consolidation and growing market power in the exchange-traded derivatives industry. A definition of implicit mergers between exchanges is offered. It is argued that electronic exchange structure will serve as the blind from which multinational mergers between existing exchanges will emerge. Economic equilibrium should entail lower pricing of electronic exchanges services initially, followed by heightened liquidity and above marginal cost pricing later. The latter will be enabled through cartelization and implicit mergers. Evidence isprovided that such merger activity has begun over the past year or so, with "international linkage" as the disguise and electronic trading facilities as the vehicle.

JEL Classification: G10, G15

Suggested Citation

Domowitz, Ian H., Electronic Derivatives Exchanges: Implicit Mergers, Network Externalities and Standardization. QUARTERLY REVIEW OF ECONOMICS AND FINANCE, Volume 35 Number 2, Summer 1995. Available at SSRN: https://ssrn.com/abstract=6473

Ian H. Domowitz (Contact Author)

ITG, Inc. ( email )

380 Madison Avenue, 4th Floor
Electronic Market Initiatives
New York, NY 10017
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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