How brokers facilitate trade for long-term clients in competitive securities markets

Article Abstract:

An adverse-selection model is tested through an analysis of Australian Stock Exchange (ASE) brokerage rates. The model, which illustrates the dynamics of security microstructure, holds that market makers who are willing to bear short-term trading losses promote market efficiency. Using data on the brokerage rates charged by market makers in the ASE, it is shown that such trading losses are supported through a self-enforcing mechanism agreed upon by both broker-dealers and their long-term clients. The results also show that market makers who incur short-term losses are able to charge higher rates to their clients, while brokers who claim short-term profits charge long-term clients at lower rates.

Securities Dealers, Investment Banking and Securities Dealing, Security brokers and dealers, Management, Securities industry

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The effect of price history on demand as mediated by perceived price expensiveness

Article Abstract:

A study was conducted to analyze a multistage process framework which forecasts that past prices are utilized to establish a reference price, that the reference price predicts perceived expensiveness of the current price, and that the perceived expensiveness mediates the influence of past prices on demand. The model was evaluated by determining the effect of past prices on perceived expensiveness and actual demand in a simulated shopping scenario. Results indicated that the influence of price history on current demand is mediated through perceived expensiveness as the model forecasts.

Pricing Policy, Analysis, Pricing, Prices

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