Optimal Investment Banks

Investment banks offer different services at different levels of expertise that will result in different surplus to clients seeking their advice. Clients needs to seek out the investment bank that is most suitable to their needs and investment banks position themselves in the market such that they maximise their own profits. This involves a decision on their level of expertise, but also whether to specialise in certain services or offer all investment banking activities. Section 20.1 will address the question of specialisation of investment banks and how this relates to the level of expertise they acquire. While there the client base of investment banks is assumed to be homogenous, we will assume in Sect. 20.2 that the surplus generated by investment bank advice differs across clients and will establish how investment banks and clients are optimally matched.