When to Introduce Electronic Trading Platforms in Over-the-Counter Markets?

I study a hybrid over-the-counter (OTC) market structure in which traders have the choice of obtaining an asset from dealers either in a bilateral market or on an electronic trading platform. In a hybrid market (HM), turnover is higher and traders are better off than in a pure bilateral market (PBM). I present sufficient conditions under which dealer profits are higher in the HM than in the PBM and vice versa. Regulators can improve welfare by mandating electronic trading if search costs on the platform are low. Whether search costs are sufficiently low could be tested, using the model implications