Competition between Exchanges: Lessons from the Battle of the Bund

55 Pages Posted: 20 Jan 2008 Last revised: 11 Dec 2008

See all articles by Estelle Cantillon

Estelle Cantillon

Free University of Brussels (VUB/ULB) - ECARES; Centre for Economic Policy Research (CEPR)

Pai-Ling Yin

Marshall School of Business, University of Southern California

Date Written: June 12, 2008

Abstract

In a famous episode of financial history which lasted over eight years, the market for the future on the Bund moved entirely from LIFFE, the incumbent London-based derivatives exchange, to DTB, the entering Frankfurt-based exchange. This paper studies the determinants of traders'exchange choice, using a novel panel dataset that contains individual trading firms'membership status at each exchange together with other firm characteristics and pricing, marketing and product portfolio strategies by each exchange. Our data allows us to evaluate different sources of heterogeneity among trading firms and thus distinguish between different explanations for the observed phenomenon. The story the data tells is one of horizontal differentiation and vertical differentiation through liquidity. As a result, DTB attracted a different set of traders than LIFFE, and those traders contributed to the market share reversal.

Keywords: tipping, network effects, intermediation, platform competition, multi-homing

JEL Classification: L1, G15, G18

Suggested Citation

Cantillon, Estelle and Yin, Pai-Ling, Competition between Exchanges: Lessons from the Battle of the Bund (June 12, 2008). Atlanta Competitive Advantage Conference Paper, Available at SSRN: https://ssrn.com/abstract=1085296 or http://dx.doi.org/10.2139/ssrn.1085296

Estelle Cantillon

Free University of Brussels (VUB/ULB) - ECARES ( email )

Ave. Franklin D Roosevelt, 50 - C.P. 114
B-1050 Brussels
Belgium
+32 2 650 3840 (Phone)

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Pai-Ling Yin (Contact Author)

Marshall School of Business, University of Southern California ( email )

United States

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