Monopolistic security design in finance economies

Karl Schmedders*

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

2 Scopus citations

Abstract

The purpose of this paper is to analyze endogenous asset innovation by an entrepreneurial exchange owner in a general equilibrium model of incomplete security markets with financial transaction fees. A monopolistic market maker has the technology to introduce a new option into the economy and charge investors proportional transaction fees if they trade on the exchange. The market maker's objective is to choose the security and transaction fee that maximize revenues when opening the exchange. A computational analysis of this problem is necessary since there are no interesting models with closed-form solutions. We compute the price and welfare effects of the option introduction.

Original languageEnglish (US)
Pages (from-to)37-72
Number of pages36
JournalEconomic Theory
Volume18
Issue number1
DOIs
StatePublished - 2001

Keywords

  • Incomplete markets
  • Option introduction
  • Price effects
  • Welfare effects

ASJC Scopus subject areas

  • Economics and Econometrics

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