Endogenous bourse structures

Using a club theory approach, this paper provides an equilibrium model in which traders must belong to at least one bourse in order to trade assets. We show, by means of examples, that: 1) traders’ complementarities in preferences and endowments can determine the formation of both large bourses and bourses that are small dark pools of liquidity; 2) bourse formation costs explain the existence of bourses with incomplete markets. For this bourse economy equilibrium is shown to exist generically. We also analyze the welfare implications of considering instead a monopolist bourse that can or cannot exclude and distinguish among traders.