Essays on Stock Exchange Competition and Pricing

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School of Business | Doctoral thesis (article-based) | Defence date: 2005-06-01
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Date

2005

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Kansantaloustiede
Economics

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Language

en

Pages

146 s.

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Acta Universitatis oeconomicae Helsingiensis. A, 252

Abstract

This study deals with the industrial structure, the nature of competition and the pricing of stock exchange trading services in Europe. Specific for the study is that exchanges are considered to be profit-maximizing institutions that face competition. A conventional analysis of concentration ratios shows that the concentration of European stock exchanges is low. When the nature of competition is measured in more detail, regression results indicate that exchanges operate in monopolistic or perfect competition at the European level. Pricing of stock exchange matching services under network externalities is studied in a three-layered spatial model. The model presents a monopoly exchange and interaction between two brokers providing trading services to investors in an uncovered market. A case for investor-level network externalities is examined. Three different vertical industry structures were analyzed: no collusion, collusion between brokers, and vertically integrated industry. It was found that the vertically integrated structure results in the lowest fees and the highest demand as well as in the highest profits for brokers. Finally, the empirical determination of the optimal pricing of share trading services is studied. In particular, optimal price schedule is determined for the Helsinki stock exchange. The estimation results indicate that the market level demand for trading services is elastic. Moreover, the fee structure of Helsinki stock exchange is found to be multidimensional compared with other stock exchanges

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Supervising professor

Ilmakunnas, Pekka, professor

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https://urn.fi/URN:ISBN:951-791-917-4

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[diss] Kauppakorkeakoulu / BIZ