Market Power in a Securities Market with Endogenous Information

Mark Grinblatt and Stephen Ross

The Quarterly Journal of Economics, 1985, vol. 100, issue 4, 1143-1167

Abstract: A rational expectations model of a securities market is developed in which one agent, the monopolist, behaves like a Stackelberg leader and other agents behave competitively. Two information structures, one in which each agent has identical information and the other in which each agent has independent information are examined. Equilibrium is shown to exist and is characterized in both cases, but monopoly has a significant effect on the equilibrium only in the latter. The optimal strategy of the Stackelberg leader is also studied, and it is shown that he will not randomize his strategy by adding white noise to his demand function, even though this obfuscates the information content of the market price.

Date: 1985
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