Organizational Design, Competition, and Financial Exchanges
The article "Organizational Design, Competition, and Financial Exchanges" by Steffen Juranek and Uwe Walz has been accepted for publication by the Scandinavian Journal of Economics.
We investigate the incentives for vertical and horizontal integration in the financial securities service industry. In a model with two exchanges and two central security depositories (CSDs), we find that decentralized decisions might lead to privately and socially inferior industry equilibria with vertical integration of both CSDs with their respective exchange. Allowing for horizontal integration of CSDs avoids privately inferior industry equilibria. However, we observe too little horizontal integration from the social perspective. We link our results to recent regulatory and institutional developments such as the emergence of multilateral trading facilities, OTC regulation and financial harmonization.