clustering and competition in asset markets economists financial commentators regulatory agencies and the legal community have recently criticized the nasdaq stock market inc because there is greater clustering of stock quotations on even eighths on nasdaq than on the new york stock exchange or the american stock exchange a phenomenon which critics attribute to collusion or some other defect in nasdaq market structure however as this article demonstrates clustering occurs in varying degrees in many other incontestably competitive financial markets including the nyse the amex the london stock exchange the london gold market and the international foreign exchange market this article provides a competitive theory of clustering that emphasizes the effect of uncertainty the size of transactions volatility and the informational and transactional roles of quotations on the degree of clustering in addition the article examines how market structure can affect the degree of clustering and considers the relation between clustering spread

preemptive r d rent dissipation and the leverage theory this paper provides a new perspective on the validity of the so called leverage theory in a model of preemptive innovation in systems markets i examine the effect of bundling on r d incentives i find that bundling provides a channel through which monopoly slack in one component market can be shifted to another with the effect of mitigating rent dissipation in the systems market bundling can be profitable if this beneficial effect of reduced rent dissipation outweighs the negative effect of intensified price competition after demonstrating the private optimality of bundling its welfare implications are considered finally the results can be reinterpreted to analyze the relationship between compatibility decisions and r d incentives in mix and match models

tying in two sided markets with multi homing this paper analyzes the effects of tying on market competition and social welfare in two sided markets when economic agents can engage in multi homing by participating in multiple platforms to reap maximal network benefits the model shows that tying induces more consumers to multi home and makes platform specific exclusive content available to more consumers which is beneficial to content providers as a result tying can be welfare enhancing if multi homing is allowed even in cases where its welfare impacts are negative in the absence of multi homing the analysis thus can have important implications for recent antitrust cases in industries where multi homing is prevalent

internalization and stock price clustering finnish evidence abstract internalization the practice of brokers executing trades in house is a significant phenomenon in the helsinki stock exchange during the continuous trading session 97 5 upstairs market trades are internalized the corresponding figure for after hours upstairs market trades is 73 1 the prices of internalized trades are somewhat more clustered than the prices of other trades during the continuous trading session but they are not more clustered than the prices of negotiated trades in the after hours upstairs market this suggests that finnish brokers do not use a more discrete set of prices for internalized trades than for other upstairs trades

stock price clustering and discreteness stock prices cluster on round fractions clustering increases with price level and volatility and decreases with capitalization and transaction frequency clustering is pervasive price clustering will occur if traders use discrete price sets to simplify their negotiations exchange regulations require that most stocks be traded on eighths clustering on larger fractions will occur if traders choose to use discrete price sets based on quarters halves or whole numbers an econometric model of clustering is derived and estimated projections from the results suggest that traders would frequently use odd sixteenths when trading low price stocks if exchange regulations permitted trading on sixteenths article published by oxford university press on behalf of the society for financial studies in its journal the review of financial studies

chicken and egg competition among intermediation service providers we analyze a model of imperfect price competition between intermediation service providers we insist on features that are relevant for informational intermediation via the internet the presence of indirect network externalities the possibility of using the nonexclusive services of several intermediaries and the widespread practice of price discrimination based on users identity and on usage efficient market structures emerge in equilibrium as well as some specific form of inefficient structures intermediaries have incentives to propose non exclusive services as this moderates competition and allows them to exert market power we analyze in detail the pricing and business strategies followed by intermediation services providers copyright 2003 by the rand corporation

the initiation and withdrawal of odd eighth quotes among nasdaq stocks an empirical analysis christie and schultz 1994 journal of finance 49 1813 1840 nd that market makers in many active nasdaq stocks avoid odd eighth quotes this paper studies 67 58 nasdaq stocks whose market makers initiate withdraw odd eighth quotes these regime shifts are often completed within the span of a day and coincide with dramatic changes in dollar percentage and e ective spreads in most cases we are unable to identify comparable changes in the costs of making markets we do identify long run changes in average prices that may provide a partial explanation however we also nd

quote based competition and trade execution costs in nyse listed stocks abstract this study examines quotations order routing and trade execution costs for seven markets that compete for orders in large capitalization nyse listed stocks the competitiveness of quote updates from each market varies with measures of the profitability of attracting additional order and with volatility and inventory measures the probability of a trade executing on each market increases when the market posts competitive quotes execution costs for non nyse trades when the local market posts competitive non competitive quotes are virtually the same substantially exceed costs for matched nyse trades collectively these results imply a significant degree of quote based competition for order flow and are consistent with off nyse liquidity providers using competitive quotations to signal when they are prepared to give better than normal trade executions

competition and collusion in dealer markets this article develops a game theoretic model to analyze market makers intertemporal pricing strategies we show that dealers who adopt noncooperative pricing strategies may set bid ask spreads above competitive levels this form of implicit collusion differs from explicit collusion where dealers cooperate to fix prices price discreteness or asymmetric information are not required for collusion to occur rather institutional arrangements that restrict access to the order flow are important determinants of the ability to collude because they reduce dealers incentives to compete on price public policy efforts to increase interdealer competition should focus on such restrictions

the market work behavior and wages of women 1975 94 changes in the labor market participation and wages of women in the united states are analyzed over the period 1975 1994 using data from the current population survey women are organized into nine birth cohorts five schooling groups and each year of age from 25 to 60 years and their weekly and annual work hours their annual work weeks their employment population ratio and their real average hourly earnings tabulated schooling differences in work behavior have become wider in recent cohorts as have their wages the relationship between work and wages is estimated for women of different ages cohorts and marital status the gap between the work of unmarried and married women has narrowed and the role of wages both the wages of women and those of husbands is examined to determine the extent to which changes in wages account for these movements excerpt

does order preferencing matter 1we would like to thank david easley eugene kandel the referee g william schwert the editor participants at the dealer markets conference at ohio state university and an anonymous referee for helpful comments we gratefully acknowledge financial support from the johnson graduate school of management and the national science foundation 1 abstract this study examines how order preferencing affects the competitiveness and efficiency of laboratory financial markets we operationalize preferencing by allowing some dealers to execute a portion of the order flow by matching the most favorable quotes available increasing the proportion of order flow that is preferenced can increase bid ask spreads reduce the informational efficiency of prices and benefit dealers at the expense of liquidity traders preferencing has none of these effects however when two or more dealers are not receiving preferencing orders preferencing may significantly degrade market performance if preferencing arrangements affect all or virtually all dealers

antitrust and prices this study examines the effects of antitrust prosecution on prices charged by firms indicted for price fixing in a survey of 25 cases filed between 1973 and 1984 prices are found to gradually rise by about 7 percent over the 4 years following an indictment however the severity of penalties is negatively correlated with prices these two findings suggest either that penalties are too lenient or that prosecution is too broad penalizing economically efficient conspiracies along with those that are inefficient

why nasdaq market makers avoid odd eighth quotes recent studies argue that implicit collusion explains the tendency of nasdaq market makers to avoid odd eighth price quotes this paper focuses on the role that preference trading plays in determining quoted spreads under the postulated effects of preference trading an analysis of the relation between spreads and price fractions explains the paucity of odd eighth quotes on nasdaq empirical results from a comprehensive data set show that exogenous economic characteristics explain the distribution of price fractions across securities and illustrate the stability of that distribution over time these results contradict empirical results offered as support for the collusion hypothesis

do investors prefer round stock prices evidence from israeli ipo auctions abstract we find round number clustering in orders submitted by investors in israeli ipo auctions explanations offered for price clustering such as dealer collusion or implicit agreement to simplify negotiations cannot explain price clustering in this market therefore this is direct evidence that investors prefer round numbers

tying investment and the dynamic leverage theory the idea that an incumbent supplier may tie two complementary products to fend off potential entrants is popular among practitioners yet is not fully understood in formal economic theory this article makes sense of the argument by formally deriving a dynamic version of the old leverage doctrine we show that when an incumbent monopolist faces the threat of entry in all complementary components tying may make the prospects of successful entry less certain discouraging rivals from investing and innovating tie in sales may reduce consumer and total economic welfare copyright 2001 by the rand corporation

effects of market reform on the trading costs and depths of nasdaq stocks the relative merits of dealer versus auction markets have been a subject of significant and sometimes contentious debate on january 20 1997 the securities and exchange commission began implementing reforms that would permit the public to compete directly with nasdaq dealers by submitting binding limit orders additionally superior quotes placed by nasdaq dealers in private trading venues began to be displayed in the nasdaq market we measure the impact of these new rules on various measures of performance including trading costs and depths our results indicate that quoted and effective spreads fell dramatically without adversely affecting market quality

market maker quotation behavior and pretrade transparency we examine the impact of differing levels of pretrade transparency on the quotation behavior of nasdaq market makers we find that market makers are more likely to quote on odd ticks and to actively narrow the spread when they can do so anonymously by posting limit orders on electronic communication networks ecns from a public policy perspective our findings suggest that making the level of pretrade transparency on nasdaq more opaque by allowing anonymous quotes could improve price competition and narrow spreads further

symposium on market microstructure focus on nasdaq abstract this special issue of the journal of financial economics includes six articles that analyze the market microstructure of nasdaq in various ways the question of the costs of trading on nasdaq has become contentious in both the academic and legal regulatory arenas since the christie and schultz 1994 article first noted that many actively traded nasdaq stocks were almost never quoted on odd eights the articles in this symposium bring new and interesting insights to this debate

payments for order flow on nasdaq we present a model of nasdaq that includes the two ways in which marketmakers compete for order f low quotes and direct payments brokers in our model can execute small trades through a computerized system preferencing arrangements with marketmakers or vertical integration into market making the comparative statics in our model differ from those of the traditional model of dealer markets which does not capture important institutional features of nasdaq we also show that the empirical evidence is inconsistent with the traditional model which suggests that preferencing and vertical integration are important components in understanding nasdaq

a comparison of centralized and fragmented markets with costly search how does quotation transparency affect financial market performance biais s irrelevance proposition in 1993 shows that centralized markets yield the same expected bid ask spreads as fragmented markets other things equal however de frutos and manzano demonstrated in 2002 that expected spreads in fragmented markets are smaller and market participants prefer to trade in fragmented markets this paper introduces liquidity traders costs of searching for a better quote into the biais model and derives opposite conclusions to these previous studies expected spreads in centralized markets are smaller and liquidity traders prefer centralized markets while market makers prefer fragmented markets