Social Structure and Reputation : The NASDAQ Case Study

In 1996, two investigations conducted by the Securities and Exchange Commission and the American Department of Justice reported non-competitive practices among market makers on the NASDAQ. These reports also mentioned the influence of the NASDAQ social structure on market makers` behaviours. Most market makers adopted social norms in order to increase significantly their income at the expense of the customers. This paper aims to explain the rise and long-term effects of non-competitive practices through the integration of a concrete view of embeddedness. We propose the use of game theory tools to achieve this goal. A re-reading of Kreps`s model of reputation sheds light on its structural dimension and illustrates the way social structure governs individual behaviours