Pricing Prices

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Abstract
Price quotes are a valuable commodity by themselves. This is a conundrum in the standard asset pricing framework. We study the value of access to accurate and timely prices in a market economy explicitly taking into account that in the U.S., exchanges have property rights in the price quotes they generate. The fact that typically large institutions and sophisticated individuals obtain real time price quotes motivates us to propose a simple model based on complementarity of private information on the fundamentals and information on price. We find that granting the public access to real time pricing data has benefits such as stimulating the role of stock market monitoring. Since the effect on liquidity can be negative, exchanges need to be able to charge a fee for this service. In other situations, the exchange can also benefit from free public disclosure of price quotes. We explicitly derive an equilibrium for differentially informed traders and a profit maximizing exchange. We confirm that, indeed, agents with the most precise private information will acquire real time price access. We outline several further empirical implications of our model.

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