@article {Satchell40, author = {Stephen Satchell and Bernd Scherer}, title = {Fairness in Trading: A Microeconomic Interpretation }, volume = {5}, number = {1}, pages = {40--47}, year = {2009}, doi = {10.3905/JOT.2010.5.1.040}, publisher = {Institutional Investor Journals Umbrella}, abstract = {This article shows that nonlinear transaction costs generate external effects between accounts due to trade-volume-dependent marginal transaction costs. For an asset manager with multiple clients, this raises the question of fairness: How do I ensure that all clients are treated fairly? In general, two possible solutions exist. The first is the so-called COURNOT/NASH solution, where each account is optimized under the assumption that trading in the remaining accounts is given. However, in a COURNOT/NASH equilibrium, each client pays the average costs of trading but creates higher marginal costs (under the assumption of nonlinear transaction costs) on the {\textquotedblleft}community{\textquotedblright} of accounts. Ignoring this interdependence will hurt performance in all accounts. The authors model optimal trading with mean variance preferences as a duopoly game. This allows the use of well-developed microeconomic tools for analyzing the optimal trading problem and linking it with the literature on external effects and their solution, i.e., the COASE theorem. TOPICS: Factor-based models, statistical methods, portfolio construction}, issn = {1559-3967}, URL = {https://jot.pm-research.com/content/5/1/40}, eprint = {https://jot.pm-research.com/content/5/1/40.full.pdf}, journal = {The Journal of Trading (Retired)} }