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Exchange Competition, Entry, and Welfare

Giovanni Cespa () and Xavier Vives ()

No 7432, CESifo Working Paper Series from CESifo Group Munich

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 (search for similar items in EconPapers)
JEL-codes: G10 G12 G14 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-com and nep-gth
Date: 2018
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