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How Secondary Trade Affects Social Welfare in an Over-the-Counter Market

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  • Spencer Cooper-Ohm
  • Nicholas Trachter

Abstract

Over-the-counter markets with secondary trade and an unfixed quantity of assets suffer from inefficiency stemming from a double-sided hold-up problem between consumers and intermediaries. The inefficiency cannot be resolved through bargaining power alone, since efficiency would require both intermediaries and consumers to have full bargaining power. A budget neutral tax/subsidy scheme could resolve this inefficiency and increase social welfare by up to 13.3 percent.

Suggested Citation

  • Spencer Cooper-Ohm & Nicholas Trachter, 2025. "How Secondary Trade Affects Social Welfare in an Over-the-Counter Market," Richmond Fed Economic Brief, Federal Reserve Bank of Richmond, vol. 25(46), December.
    • Handle: RePEc:fip:fedreb:102286
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