Financial Intermediation Without Exclusivity

The authors describe previous papers by them in which they model financial intermediation in an environment where traders may choose to default and examine the characteristics of the equilibrium. They also assume that exchanges cannot control the size of the positions taken by individuals but preclude investors from participating in more than one exchange. In the current paper, the authors examine the effect of dropping the exclusivity assumption and show that the constrained optimum can no longer be implemented as a standard Nash equilibrium with free entry. In their model of financial intermediation, agents may want to combine several contracts, and this is precisely the reason why the original equilibrium does not survive as a Nash equilibrium once exclusivity is dropped.