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Efficient dark markets

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  • Romans Pancs

Abstract

This paper studies a standard dynamic trading environment with asymmetric information. A trading mechanism, called a dark market, is proposed that achieves allocative efficiency (i.e., maximizes the total surplus). The mechanism’s critical feature is that it conceals from traders the history of past trades. Under plausible conditions, the dark market is stable (i.e., impervious to non-conforming trades offered by an entrant market-maker). Copyright Springer-Verlag Berlin Heidelberg 2015

Suggested Citation

  • Romans Pancs, 2015. "Efficient dark markets," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 59(3), pages 605-624, August.
    • Handle: RePEc:spr:joecth:v:59:y:2015:i:3:p:605-624
    DOI: 10.1007/s00199-014-0851-x
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    References listed on IDEAS

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    Cited by:

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    2. Marta Faias & Jaime Luque, 2017. "Endogenous formation of security exchanges," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 64(2), pages 331-355, August.

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    Keywords

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    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • D02 - Microeconomics - - General - - - Institutions: Design, Formation, Operations, and Impact
    • D40 - Microeconomics - - Market Structure, Pricing, and Design - - - General

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