How does deviation from perfect competition (or situations of market power) arise on financial markets?
One form of market power that is commonly observed in the world arises with an exchange which limits the supply of seats so as to increase brokerage rates. This behaviour reflects itself in the price of a seat on the exchange, or the seat price”. In an ideal economy, the seat price (devoid of any real estate or other facilities) should be close to 0. A high seat price implies bid-ask spreads and brokerage fees above the level that is found in perfect competition. This implicit elevation” can sometimes even become overt: prior to 1974, NYSE specified a (elevated) brokerage commission schedule, and members were required to not offer prices better than the defined schedule. In addition to this form, every economy has some unusually large traders. This is another avenue through which deviations from perfect competition are observed.
Related Questions
- What is the competitive nature of the market (i.e. perfect competition, monopolistic or oligopolistic competition, fragmented markets)?
- How does deviation from perfect competition (or situations of market power) arise on financial markets?
- Does a monopoly, oligopoly, perfect competition, or monopolistic competition have the most market power?
