You are right that the interaction is much more complicated to model correctly multi-period than either of us has described. Either way, it is clear that being

You are right that the interaction is much more complicated to model correctly multi-period than either of us has described. Either way, it is clear that being faster will produce higher returns for a given algo. The question is how much. Given the extreme things HFT guys do, I think it is clear they understand a tiny increase in speed can result in handsome returns. Is this efficient for the exchange? What if the exchange traded once every 5 seconds in a blind auction, then there would be no real advantage to speed. Each computer would have 4.5-4.95 seconds to parse the auction results and post new orders. Would this exchange be more or less liquid? (I don't know, but it is interesting to think about.) The barrier to entry to be a market maker would be lower. The market making code would look more like Poker bot code, rather than what HFT does now.