Electronic communication networks increase which of the following in a market?

• A. Price rigidity
• B. Transaction costs
• C. Market efficiency
• D. Barriers to entry

Answer: (C)

Verified step by step guidance

1. Understand the concept of electronic communication networks (ECNs) in markets: ECNs are computerized systems that automatically match buy and sell orders for securities, facilitating faster and more transparent trading.
2. Recall the definitions of the options given: Price rigidity refers to prices being slow to change; transaction costs are the costs incurred in making an economic exchange; market efficiency means that prices fully reflect all available information; barriers to entry are obstacles that make it difficult for new firms to enter a market.
3. Analyze how ECNs affect each option: ECNs reduce the time and effort needed to execute trades, which lowers transaction costs rather than increasing them; they also promote rapid price adjustments, reducing price rigidity; by providing transparent and quick access to market information, they enhance market efficiency.
4. Conclude that ECNs increase market efficiency because they improve the speed and transparency of transactions, allowing prices to better reflect available information.
5. Therefore, the correct answer is that electronic communication networks increase market efficiency in a market.