Search Results
Working Paper
The Effects of Competition in the Retail Gasoline Industry
We estimate the effect of competition on incumbent firm pricing by using high frequency price data and the precise geographic location for all gas stations in California. Using an event study design, we find that the entry of a new station is associated with a 2.5 cent decrease in prices at incumbent stores, which equates to a 7 percent reduction in estimated retail markups. The effects are immediate, persistent and show no sign of deterrence or limit pricing behavior. In contrast, nearby exit results in precisely estimated null effects on prices with no evidence of predatory pricing in the ...
Discussion Paper
Monetizing Privacy with Central Bank Digital Currencies
In prior research, we documented evidence suggesting that digital payment adoptions have accelerated as a result of the COVID-19 pandemic. While digitalization of payment activity improves data utilization by firms, it can also infringe upon consumers’ right to privacy. Drawing from a recent paper, this blog post explains how payment data acquired by firms impacts market structure and consumer welfare. Then, we discuss the implications of introducing a central bank digital currency (CBDC) that offers consumers a low-cost, privacy-preserving electronic means of payment—essentially, digital ...
Working Paper
Capital requirements in a quantitative model of banking industry dynamics
We develop a model of banking industry dynamics to study the quantitative impact of capital requirements on bank risk taking, commercial bank failure, and market structure. We propose a market structure where big, dominant banks interact with small, competitive fringe banks. Banks accumulate securities like Treasury bills and undertake short-term borrowing when there are cash flow shortfalls. A nontrivial size distribution of banks arises out of endogenous entry and exit, as well as banks? buffer stocks of securities. We test the model using business cycle properties and the bank lending ...
Report
U.S. Treasury Market Functioning from the GFC to the Pandemic
This article examines U.S. Treasury securities market functioning from the global financial crisis (GFC) through the Covid-19 pandemic given the ensuing market developments and associated policy responses. We describe the factors that have affected intermediaries, including regulatory changes, shifts in ownership patterns, and increased electronic trading. We also discuss their implications for market functioning in both normal times and times of stress. We find that alternative liquidity providers have stepped in as constraints on dealer liquidity provision have tightened, supporting ...
Working Paper
Faster Payments: Market Structure and Policy Considerations
This paper reports on a research effort by Federal Reserve staff to examine market structure implications in the still?emerging faster payments market. The analysis and conclusions in this paper are those of the authors and do not indicate official positions of the Board of Governors or Federal Reserve System. Although this paper offers several considerations regarding the U.S. faster payments market, it does not make specific policy recommendations or provide a view on the potential roles, including service provider or other roles, that the Federal Reserve may play in this market.2 Given the ...
Working Paper
Costly Information Intermediation as a Natural Monopoly
Many markets rely on information intermediation to sustain cooperation between large communities.We identify a key trade-off in costly information intermediation: intermediaries can create trust by incentivizing information exchange, but with too much information acquisition, intermediation becomes expensive, with a resulting high equilibrium default rate and a low fraction of agents buying this information. The particular pricing scheme and the competitive environment affect the direct and indirect costs of information transmission, represented by fees paid by consumers and the expected loss ...
Journal Article
All-to-All Trading in the U.S. Treasury Market
Although the U.S. Treasury market remains the deepest and most liquid securities market in the world, several episodes of market dysfunction over recent years have brought the market’s resilience into focus. The adoption of all-to-all trading in the Treasury market could be one avenue to strengthening market resilience. Conceptually, all-to-all trading would allow any market participant to trade directly with any other market participant. This could be helpful in times of stress when the capacity of traditional intermediaries may be tested. In this article, we discuss what all-to-all ...
Report
Faster payments: market structure and policy considerations
The U.S. payments industry is in the process of developing ubiquitous, safe, faster electronic solutions for making a broad variety of business and personal payments. How this market for faster payments will evolve will be shaped by a range of economic forces, such as economies of scale and scope, network effects, switching costs, and product differentiation. Emerging technologies could alter these forces and lead to new organizational arrangements or market structures that are different from those in legacy payment markets to date. In light of this uncertainty, this paper examines three ...
Report
All-to-All Trading in the U.S. Treasury Market
Although the U.S. Treasury market remains the deepest and most liquid securities market in the world, several episodes of market dysfunction over recent years have brought the market’s resilience into focus. The adoption of all-to-all trading in the Treasury market could be one avenue to strengthening market resilience. Conceptually, all-to-all trading would allow any market participant to trade directly with any other market participant. This could be helpful in times of stress when the capacity of traditional intermediaries may be tested. In this article, we discuss what all-to-all ...