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Dealer competition in over-the-counter markets

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  • Singer, Alexander

Abstract

I examine the information acquisition and pricing of dealers in over-the-counter markets. I develop a theoretical model to show that heterogeneity in the dealers’ information accuracy about opaque market prices can arise endogenously and can explain heterogeneity in various dealer statistics, such as: the best-informed dealers quote the tightest bid–ask spreads, earn the highest margins, trade most frequently, and are least likely to suffer trading losses. Differently put, I show that the friction of opaque prices tends to direct the majority of trading activity/profits to a few core dealers.

Suggested Citation

  • Singer, Alexander, 2026. "Dealer competition in over-the-counter markets," Journal of Financial Markets, Elsevier, vol. 77(C).
    • Handle: RePEc:eee:finmar:v:77:y:2026:i:c:s1386418125000448
    DOI: 10.1016/j.finmar.2025.101004
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    References listed on IDEAS

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    Keywords

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    JEL classification:

    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • D85 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Network Formation
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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