Price Improvement in Dealership Markets
AbstractPrice improvement refers to the practice whereby dealers offer executions that improve on quoted prices. Why are these improvements given? Standard thinking is that competition causes dealers to give better prices to customers with less information. This paper contrasts this with a novel theory in which customers negotiate improvements and differential pricing arises from differences in customers' market power. Each theory affects the formation of bid/ask spreads in empirically distinguishable ways. Understanding price improvement and its impact on market participants is critical the regulation of markets, particularly since equal execution is such an important stated goal of the SEC.
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Bibliographic InfoArticle provided by University of Chicago Press in its journal Journal of Business.
Volume (Year): 78 (2005)
Issue (Month): 4 (July)
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- Desgranges, Gabriel & Foucault, Thierry, 2002.
"Reputation-Based Pricing and Price Improvements in Dealership Markets,"
CEPR Discussion Papers
3359, C.E.P.R. Discussion Papers.
- DESGRANGES, Gabriel & FOUCAULT, Thierry, 2000. "Reputation-based pricing and price improvements in dealership markets," Les Cahiers de Recherche 716, HEC Paris, revised 01 Mar 2002.
- Chung, Kee H. & Chuwonganant, Chairat & McCormick, D. Timothy, 2004. "Order preferencing and market quality on NASDAQ before and after decimalization," Journal of Financial Economics, Elsevier, vol. 71(3), pages 581-612, March.
- G. Desgranges & T. Foucault, 2001. "Price Improvements in Financial Markets as a Screening Device," THEMA Working Papers 2001-06, THEMA (THéorie Economique, Modélisation et Applications), Université de Cergy-Pontoise.
- Erik Theissen, 2002. "Trader Anonymity, Price Formation and Liquidity," Bonn Econ Discussion Papers bgse20_2002, University of Bonn, Germany.
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"Knowing Me, Knowing You: Trader Anonymity and Informed Trading in Parallel Markets,"
Publications of Darmstadt Technical University, Institute for Business Studies (BWL)
35288, Darmstadt Technical University, Department of Business Administration, Economics and Law, Institute for Business Studies (BWL).
- Grammig, Joachim & Schiereck, Dirk & Theissen, Erik, 2001. "Knowing me, knowing you: : Trader anonymity and informed trading in parallel markets," Journal of Financial Markets, Elsevier, vol. 4(4), pages 385-412, October.
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- Bessembinder, Hendrik & Venkataraman, Kumar, 2004. "Does an electronic stock exchange need an upstairs market?," Journal of Financial Economics, Elsevier, vol. 73(1), pages 3-36, July.
- Lescourret, Laurence & Robert, Christian Y., 2011. "Transparency matters: Price formation in the presence of order preferencing," Journal of Financial Markets, Elsevier, vol. 14(2), pages 227-258, May.
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