We integrate a market microstructure model with an exchange competition model with entry in which exchanges supply … strategic substitutes or complements in platform competition. Free entry of platforms delivers a superior outcome in terms of … liquidity and (generally) welfare compared to the case of an unregulated monopoly. Controlling entry or, even better, platform …

implications of the analysis for regulation and competition policy are derived. It is found that optimal regulation may depend on … competition and stability in banking. There are two basic channels through which competition may increase instability: by … incentives to take risk and raise failure probabilities. The competition-stability trade-off is characterized and the …