A Fast Literature Search Engine based on top-quality journals, by Dr. Mingze Gao.
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A Theory of Stock Exchange Competition and Innovation: Will the Market Fix the Market?
Resource type
Authors/contributors
- Budish, Eric (Author)
- Lee, Robin S. (Author)
- Shim, John J. (Author)
Title
A Theory of Stock Exchange Competition and Innovation: Will the Market Fix the Market?
Abstract
Will stock exchanges innovate to address latency arbitrage and the arms race for speed? This paper models how exchanges compete in the modern electronic era and how this shapes incentives for market-design innovation. In the status quo, exchange trading fees are competitive, but exchanges earn economic rents from selling speed. These rents create a wedge between private and social incentives to innovate and support the persistence of an inefficient market design in equilibrium of a market-design adoption game. We discuss implications for policy and insights for the literatures on market design, innovation, and platforms.
Publication
Journal of Political Economy
Volume
132
Issue
4
Pages
1209-1246
Date
2024-04-01
DOI
ISSN
0022-3808
Accessed
2024-06-27
Extra
Publisher: The University of Chicago Press
Citation
Budish, E., Lee, R. S., & Shim, J. J. (2024). A Theory of Stock Exchange Competition and Innovation: Will the Market Fix the Market? Journal of Political Economy, 132, 1209–1246.
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