A Search Model of Centralized and Decentralized Trade ?
نویسنده
چکیده
This paper presents a search model of centralized and decentralized trade. In a centralized market, trades are intermediated by market makers at publicly posted bidask 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 determinant of bid-ask spreads and liquidity is analyzed. The welfare consequence of the market fragmentation is also analyzed. It is shown that compared to the competitive market-making, monopolistic marketmaking may improve social welfare.
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