Capital Market Equilibrium With Imperfect Competition: The Case of the ECB’s Asset Purchase Programme

Christian Koziol () and Werner Neus ()
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Christian Koziol: University of Tuebingen
Werner Neus: University of Tuebingen

Schmalenbach Business Review, 2020, vol. 72, issue 3, No 4, 369-391

Abstract: Abstract We set up a multiperiod, CAPM-type model with imperfect competition between investors in case of an additional price-insensitive market participant. The motivation for this additional actor comes from the ECB’s announcement to buy a substantial amount of securities “whatever it takes” which reflects the willingness to trade in a entirely price-inelastic way. Our model explains the effects on demand functions, equilibrium prices, portfolio holdings and investors’ expected utility. The interaction of price-inelastic additional demand by the ECB, on the one hand, and imperfect competition, on the other hand, causes differentiated results regarding timing strategies, development of prices over time, and utility implications.

Keywords: Price-inelastic demand; Asset pricing; Imperfect competition; Market liquidity; D 43; G 12 (search for similar items in EconPapers)
Date: 2020
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DOI: 10.1007/s41464-020-00093-z

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