Question: Based on the case study Quoting Convention of NASDAQ Dealers Prompts a Justice Department Probe Please point out what you would liked about this analysis and do you agree or disagree with it? In paragraph form. Below is the case study link.

Market makers play a central role in any trading system. They are responsible for making price quotations for the shares traded on the respective stock exchange. For this purpose, a computer system is used which enables them to continuously adjust and communicate their quoted prices. Each market maker specifies an "ask" and "bid" price at which they are willing to sell or buy a stock. For normal investors, this means that it is only possible to buy a share at the "ask" price issued by one of the market makers and to sell it at the "bid" price.

The market makers earn their money through the so-called "inside spread", the difference between the "ask" and "bid" price. Today there are many more market makers, but at that time they were able to profit from an oligopoly position, because there were only a limited number of market makers in the United States. But since every normal investor who wants to trade shares on the stock exchange is dependent on paying the fixed prices of the market makers, they have immense market power.

The wider the spread between ask and bid prices, the greater the profit of the market makers. They compete with each other in the sense that investors tend to buy more shares from the one with the lowest ask or bid price when they want to sell. In the present case, however, the market makers mentioned have used their market power to reach price agreements among themselves. The aim is to maintain a uniform inside spread of at least 3/4 of a point per share. To ensure this, no ask and bid prices were issued in odd-eights for such shares.

This collusion also called "quoting convention" was taken into account by all market makers and if someone did not play by the "rules" peer pressure and threats were used to stop market makers from doing so. For example, the threat was made to exclude those who violate the convention from future business and thus from the market. This was only possible because at that time a manageable number of market makers with great market power existed in the United States. For a long time, collusion therefore meant that there was no open and free competition. Price competition between market makers was suppressed, which meant that investors did not receive the price resulting from open competition, but were burdened with higher transaction costs over a long period of time due to the artificially high spread.

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