Scale Economies in the Money Market

Money-market issuers reward scale when they borrow from prime money funds. The scale they reward isn’t the scale of the transaction or of the fund, but rather the scale of the fund complex. For a one-month loan the magnitude is a basis point per fourfold increase in complex size. Larger complexes also enjoy an advantage when exiting holdings: they are both more likely to part with a holding and more likely to exchange it with the issuer for new paper with longer maturity. Our results demonstrate both economies of scale, which can concentrate the industry, and also the importance of relationships in money-market transactions.