Winner Takes All

Falling average costs for stock markets are discussed. Four costs are considered and explained (i) Commissions, (ii) Bid Ask Spreads, (iii) The time needed to find a matching trade, and (iv) The potential movement of price against the entity initiating a trade. All four costs decline as a specific security’s volume traded at a particular venue increases. When stock exchanges compete, eventually a single stock exchange emerges as the winner, i.e., as the natural monopolist.