Natural monopolies and vertical integration December 3, 2012 at 11:17 am
The SWP has a post here on the on-going swap data repository mess (SDR) in the US. I admit to not having fully thought through the pros and cons of vertical integration in this space, although I do have concerns about the monopoly issues that come with vertical integration, so I won’t comment on the first part of his post. This, though, is clearly right:
there are substantial scale and scope economies in creating and operating an SDR, and that an SDR is a natural, multi-product monopoly. It is highly likely that the efficient form of organization would be an industry utility/cooperative, likely a non-profit.
Unfortunately that is not what we are going to get. Therefore, as SWP says, “although mandatory reporting to a [single] data hub/SDR is a good idea, as a result of political economy considerations it will be implemented in a highly inefficient way.”