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Title:Vertical integration, competition, and financial exchanges: Is there grain in the silo? PDF Logo
Authors:Juranek, Steffen
Walz, Uwe
Issue Date:2010
Series/Report no.:CFS Working Paper 2010/22
Abstract:We investigate the incentives for vertical or horizontal integration in the financial security service industry, consisting of trading, clearing and settlement. We thereby focus on firms' decisions but also look on the implications of these decisions on competition and welfare. Our analysis shows that the incentives for vertical integration crucially depend on industry as well as market characteristics. A more pronounced demand for liquidity clearly favors vertical integration whereas deeper financial integration increases the incentives to undertake vertical integration only if the efficiency gains associated with vertical integration are sufficiently large. Furthermore, we show that market forces can suffer from a coordination problem that end in vertically integrated structures that are not in the best interest of the firms. We believe this problem can be addressed by policy measures such as the TARGET2-Securities program. Furthermore, we use our framework to discuss major industry trends and policy initiatives.
Subjects:Vertical Integration
Horizontal Integration
Competition
Trading
Settlement
JEL:G15
L13
L22
Persistent Identifier of the first edition:urn:nbn:de:hebis:30-87109
Document Type:Working Paper
Appears in Collections:CFS Working Paper Series, Universität Frankfurt a. M.

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