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Competition and Information Production in Market Maker Models
Author(s) -
Morrison Alan D.
Publication year - 2004
Publication title -
journal of business finance and accounting
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.282
H-Index - 77
eISSN - 1468-5957
pISSN - 0306-686X
DOI - 10.1111/j.0306-686x.2004.00571.x
Subject(s) - allocative efficiency , incentive , production (economics) , private information retrieval , competition (biology) , microeconomics , economics , contrast (vision) , welfare , information asymmetry , industrial organization , public information , business , public economics , market economy , ecology , statistics , mathematics , public administration , artificial intelligence , computer science , political science , biology
The microstructure literature models the mechanisms through which fundamental information is incorporated into market prices. This paper extends previous models by endogenising information production and analysing incentives for costly information production. In contrast to the existing literature, increasing the number of informed traders can result in reduced price informativeness. When prices have an allocative role this has welfare consequences: the regulatory implications of a dichotomy between private and public incentives for information gathering are discussed.