Price Competition between Market Makers
AbstractThis paper explicitly models price competition in financial markets in which prices are quoted by competing dealers before future demand is observed. The strategic behavior of informed insiders and uninformed liquidity traders implies that a growing number of marketmakers leads to a higher risk exposure for the individual marketmaker, which induces higher individual bid-ask spreads and higher transaction costs for the liquidity traders. Under certain conditions, liquidity traders would prefer a monopolistic marketmaker rather than several competing marketmakers. The results hold under various assumptions on the strategy space of the marketmakers. Copyright 1993 by The Review of Economic Studies Limited.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Bibliographic InfoArticle provided by Wiley Blackwell in its journal Review of Economic Studies.
Volume (Year): 60 (1993)
Issue (Month): 3 (July)
Contact details of provider:
Web page: http://www.blackwellpublishing.com/journal.asp?ref=0034-6527
You can help add them by filling out this form.
CitEc Project, subscribe to its RSS feed for this item.
- Thomas Gehrig & Matthew Jackson, 1994.
"Bid-Ask Spreads with Indirect Competition Among Specialists,"
1107, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
- Gehrig, Thomas & Jackson, Matthew, 1998. "Bid-ask spreads with indirect competition among specialists," Journal of Financial Markets, Elsevier, vol. 1(1), pages 89-119, April.
- Gehrig, Thomas & Jackson, Matthew O., 1997. "Bid-Ask Spreads with Indirect Competition among Specialists," CEPR Discussion Papers 1648, C.E.P.R. Discussion Papers.
- Angeles de Frutos, M. & Manzano, Carolina, 2005.
"Trade disclosure and price dispersion,"
Journal of Financial Markets,
Elsevier, vol. 8(2), pages 183-216, May.
- Boulatov, Alex & Hatch, Brian C. & Johnson, Shane A. & Lei, Adam Y.C., 2009. "Dealer attention, the speed of quote adjustment to information, and net dealer revenue," Journal of Banking & Finance, Elsevier, vol. 33(8), pages 1531-1542, August.
- CALCAGNO, Riccardo & LOVO, Stefano M., 1998. "Bid-ask price competition with asymmetric information between market makers," CORE Discussion Papers 1998016, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
- Peter C. Reiss & Ingrid M. Werner, 1994. "Transaction Costs in Dealer Markets: Evidence From The London Stock Exchange," NBER Working Papers 4727, National Bureau of Economic Research, Inc.
- FOUCAULT, Thierry & RÖELL, Ailsa & SANDAS, Patrik, 2000.
"Market Making with Costly Monitoring : An Analysis of the SOES Controversy,"
Les Cahiers de Recherche
702, HEC Paris.
- Thierry Foucault & Ailsa Röell & Patrik Sandås, 2003. "Market Making with Costly Monitoring: An Analysis of the SOES Controversy," Review of Financial Studies, Society for Financial Studies, vol. 16(2), pages 345-384.
- William B. English, 2002. "Financial consolidation and monetary policy," Economic Policy Review, Federal Reserve Bank of New York, issue May, pages 271-284.
- LOVO, Stefano M. & CALCAGNO, R., 2001. "Market efficiency and Price Formation when Dealers are Asymmetrically Informed," Les Cahiers de Recherche 737, HEC Paris.
- Yavas, Abdullah, 2001. "The immediacy service of the specialist as a coordination mechanism," International Review of Economics & Finance, Elsevier, vol. 10(3), pages 205-221, July.
- Parlour, Christine A. & Rajan, Uday, 2003. "Payment for order flow," Journal of Financial Economics, Elsevier, vol. 68(3), pages 379-411, June.
- Bondarenko, Oleg & Sung, Jaeyoung, 2003. "Specialist participation and limit orders," Journal of Financial Markets, Elsevier, vol. 6(4), pages 539-571, August.
- Calcagno, R. & Lovo, S.M., 2002. "Market Efficiency and Price Formation When Dealers are Asymmetrically Informed," Discussion Paper 2002-42, Tilburg University, Center for Economic Research.
- Bondarenko, Oleg, 2001. "Competing market makers, liquidity provision, and bid-ask spreads," Journal of Financial Markets, Elsevier, vol. 4(3), pages 269-308, June.
- Marco Wölfle, 2009. "Information-based trade in Russia and the effects of listing abroad," Economic Change and Restructuring, Springer, vol. 42(4), pages 229-262, November.
- Pasquariello, Paolo, 2010. "Central bank intervention and the intraday process of price formation in the currency markets," Journal of International Money and Finance, Elsevier, vol. 29(6), pages 1045-1061, October.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Wiley-Blackwell Digital Licensing) or (Christopher F. Baum).
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.