That analogy is tempting but inaccurate. Pretty popular with the Mike Lewis "the market is RIGGED against the LITTLE GUY and we're all MAD AS HELL" crowd, but in the end it's hyperbole. IEX is not for the little guy. IEX is for the really big guy. Institutional investors. They are tired of having the market run away from them on large orders.
A closer analogy would be that the neighbor is the owner of the local supermarket and you have recently announced that you were going to buy all the milk in the region. You go to one local supermarket (not his) first and buy out the entire stock of milk. On your way to the next one (his), he raises the price of milk to $4.20, knowing that your increase in demand is going to drive up the price everywhere and he doesn't want to be the idiot that sold you milk at $4.00/gal and will have to resupply at $4.20, losing 20 cents per gallon on that sale. When you get there your realize that the price of milk has gone up, and you yell and scream and stomp your feet, but you buy the milk anyways, because you have high demand for milk. The supermarket owner is not a jerk for responding to the increased demand for milk, but many people see it that way.
So maybe your a really rich guy who can afford a lot of milk, and so you lobby the government to restrict the ability of supermarket owners to talk to each other, maybe they have to wait a day or something. The supermarket owners are just going to respond by increasing the price of milk on average, because there are random milk thirsty people coming through every once in a while buying up all the milk, increasing the price, and they need to increase the milk premium so they can afford to resupply. They need to compensate for that risk. For that reason everybody loses out. Less people are going to buy milk due to increased prices, so that's bad for the store owner, and milk buyers are going to have to pay a higher price.
Same thing is going to happen at IEX. There is simply going to be a wider bid/ask spread.
Yours was the comment that made me understand how the spread economics described elsewhere in this thread worked, thanks for that. The average price increase in the absence of the HFT bids was the part that made it click.
That said, it should be mentioned that the "rich guy"/"institutional investor" includes various pension funds.
"In a letter urging the SEC to approve IEX as a full exchange, the Teacher Retirement System of Texas, a pension fund that manages more than $125 billion, suggested that trading through IEX could save the system millions of dollars a year."
A closer analogy would be that the neighbor is the owner of the local supermarket and you have recently announced that you were going to buy all the milk in the region. You go to one local supermarket (not his) first and buy out the entire stock of milk. On your way to the next one (his), he raises the price of milk to $4.20, knowing that your increase in demand is going to drive up the price everywhere and he doesn't want to be the idiot that sold you milk at $4.00/gal and will have to resupply at $4.20, losing 20 cents per gallon on that sale. When you get there your realize that the price of milk has gone up, and you yell and scream and stomp your feet, but you buy the milk anyways, because you have high demand for milk. The supermarket owner is not a jerk for responding to the increased demand for milk, but many people see it that way.
So maybe your a really rich guy who can afford a lot of milk, and so you lobby the government to restrict the ability of supermarket owners to talk to each other, maybe they have to wait a day or something. The supermarket owners are just going to respond by increasing the price of milk on average, because there are random milk thirsty people coming through every once in a while buying up all the milk, increasing the price, and they need to increase the milk premium so they can afford to resupply. They need to compensate for that risk. For that reason everybody loses out. Less people are going to buy milk due to increased prices, so that's bad for the store owner, and milk buyers are going to have to pay a higher price.
Same thing is going to happen at IEX. There is simply going to be a wider bid/ask spread.