The Division of Markets is Limited by the Extent of Liquidity (Spatial Competition with Externalities).
Liquidity considerations will limit the number of markets in a competitive economy. Welfare implications are ambigious. Since liquidity is a positive externality, there may be too little liquidity per market at a noncooperative equilibrium and too many markets compared to the surplus-maximizing market structure. But liquidity is also self-reinforcing. Given an existing equilibrium, new markets may not open because nobody wants to use a new market with low liquidity. There may be too few markets to achieve efficiency. A nondiscriminating monopolist will operate smaller and more numerous markets compared to optimality as well as to the equilibrium of independent auctioneers. Copyright 1988 by American Economic Association.
Year of publication: |
1988
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Authors: | Economides, Nicholas ; Siow, Aloysius |
Published in: |
American Economic Review. - American Economic Association - AEA. - Vol. 78.1988, 1, p. 108-21
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Publisher: |
American Economic Association - AEA |
Saved in:
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