Abstract
This paper analyzes the welfare effects of vertical and horizontal integration for different market structures in the securities trading and settlement industry. We use a simple model of vertical control for the analysis and compare the theoretical results with the empirical prices and quantities of the post-trade industry in the European Union. Results fundamentally depend on the degree of economies of scale and scope that can be reaped by the vertically and horizontally integrated entities. We find that the theoretical model can replicate the structure of prices and quantities in the market in some cases. However, there is no clear evidence that the vertically integrated firms charge lower prices than their competitors. We argue that this is an indication of low competition in the industry because the potential to decrease prices is not transferred to investors.
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