A search model of centralized and decentralized trade

This paper presents a search model of centralized and decentralized trade. In a centralized market, trades are intermediated by market makers at publicly posted bid–ask prices. In a decentralized market, traders search counterparties. Prices are negotiated and transactions are conducted in private meetings among traders. Traders can choose which market to enter. The determinants of bid–ask spreads and liquidity are analyzed. The welfare consequence of the market fragmentation is also analyzed. It is shown that compared to the competitive market-making, monopolistic market-making may improve social welfare. ? 2005 Elsevier Inc. All rights reserved.

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Authors:	Miao, Junjian
Institutions:	Department of Economics, Boston University
Subject:	Search \| Matching and bargaining \| Bid–ask spread \| Liquidity \| Welfare \| Walrasian equilibriummarkets

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Extent:	application/pdf
Series:	Boston University - Department of Economics - Macroeconomics Working Papers Series.
Type of publication:	Book / Working Paper
Language:	English
Notes:	Published in Review of Economic Dynamics Number WP2005-012 25 pages
Classification:	D4 - Market Structure and Pricing ; D83 - Search, Learning, Information and Knowledge ; G12 - Asset Pricing
Source:	RePEc - Research Papers in Economics

Persistent link: https://www.econbiz.de/10005200371