A Search Model of Centralzied and Decentralized Trade
AbstractThis paper presents a search model of centralized and decentralized trade. In a centralized market, trades are intermediated by market makers at publicly posted bid-ask 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 market-making may improve social welfare. (Copyright: Elsevier)
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Bibliographic InfoPaper provided by Boston University - Department of Economics in its series Boston University - Department of Economics - The Institute for Economic Development Working Papers Series with number dp-144.
Length: 35 pages
Date of creation: Jan 2005
Date of revision:
searching; matching and bargaining; bid-ask spread; liquidity; welfare; Walrasian equilibrium;
Other versions of this item:
- Jianjun Miao, 2006. "A search model of centralized and decentralized trade," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 9(1), pages 68-92, January.
- Jianjun Miao, 2004. "A Search Model of Centralized and Decentralized Trade," Microeconomics 0410003, EconWPA.
- Junjian Miao, . "A search model of centralized and decentralized trade," Boston University - Department of Economics - Macroeconomics Working Papers Series WP2005-012, Boston University - Department of Economics, revised Oct 2005.
- D4 - Microeconomics - - Market Structure and Pricing
- D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search, Learning, and Information
- G12 - Financial Economics - - General Financial Markets - - - Asset Pricing
This paper has been announced in the following NEP Reports:
- NEP-ALL-2006-05-06 (All new papers)
- NEP-DGE-2006-05-06 (Dynamic General Equilibrium)
- NEP-FMK-2006-05-06 (Financial Markets)
- NEP-INT-2006-05-06 (International Trade)
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