Finding a Good Price in Opaque Over-the-Counter Markets
نویسنده
چکیده
This article offers a dynamic model of opaque over-the-counter markets. A seller searches for an attractive price by visiting multiple buyers, one at a time. The buyers do not observe contacts, quotes, or trades elsewhere in the market. A repeat contact with a buyer reveals the seller’s reduced outside options and worsens the price offered by the revisited buyer. When the asset value is uncertain and common to all buyers, a visit by the seller suggests that other buyers could have quoted unattractive prices and thus worsens the visited buyer’s inference regarding the asset value. (JEL G14, C78, D82, D83)
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Akerlof, G.A. 1970. “The Market for “Lemons”: Quality Uncertainty and the Market Mechanism.” Quarterly Journal of Economics 84(3): 488–500. Chatterjee, K. and W.F. Samuelson. 1983. “Bargaining under Incomplete Information.” Operations Research 31: 835–51. Chiu, J. and T.V. Koeppl. 2011. “Trading Dynamics with Adverse Selection and Search: Market Freeze, Intervention and Recovery.” Working Paper...
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