In this paper, we study the relation among market structure, trading costs, and
competition in NASDAQ. In particular, we address the following questions: Do
NASDAQ dealers exercise market power and extract economic rents in setting bid ask
spread? How persistent is the market power of dominant dealers? Our estimate of
the rent is approximately 8.76, or 0.54% of stock price. The half life of the
persistence of this rent is approximately 20 months for the entire sample, while
the half life of younger stocks tend to be shorter than those of more mature
stocks. Our result supports Schultz (2002), NASDAQ dealers make markets only for
stocks where they have competitive advantages in accessing order flow and in
information. It might take a while before a market maker poses effective
competition to existing dominant market makers. In the meantime, incumbent market
makers are able to exercise market power and appear to earn abnormally large
profits.
학회소식
공지사항
[2003년 제 2차] Competition and Market Structure of NASDAQ
작성자 : 관리자
조회수 : 1022
게시일 :
2003-07-12