Review of Finance Vol. 30 No. 4 2026

Competition, complexity, and security design: evidence from retail investment products

Marc Chesney¹; Felix Fattinger²; Jonathan Krakow¹; Simon Straumann³

¹ Department of Finance, Center of Competence for Sustainable Finance, University of Zurich , 8032 Zurich, · ² Institute for Finance, Banking and Insurance, Vienna University of Economics and Business , 1020 Vienna, · ³ WHU—Otto Beisheim School of Management , 56179 Vallendar,

Abstract

We investigate the role of strategic security design in the market for retail investment products. Focusing on a dominant yet understudied design feature, we provide evidence consistent with issuers’ strategic increase of product complexity to mitigate price competition. Complexity facilitates product differentiation, thereby impairing investors’ ability to compare products. Because more complex products entail greater markups, imply higher tail risk, and are first-order stochastically dominated by simpler products, the empirically observed rise in market complexity increases uncompensated risk-taking, particularly among less sophisticated investors. Overall, our findings indicate that complexity is shaped by issuers’ deliberate design choice to preserve product rents.

DOI

10.1093/rof/rfag001

Volume

30

Issue

4

Pages

1403-1435

Language

en

Sources

crossref

Cite

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