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A Search Model of Centralzied and Decentralized Trade

  • Jianjun Miao

    ()

    (Institute for Economic Development, Boston University)

This 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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File URL: http://www.bu.edu/econ/ied/dp/papers/dp144-Miao.pdf
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Paper 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.

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Length: 35 pages
Date of creation: Jan 2005
Date of revision:
Handle: RePEc:bos:iedwpr:dp-144
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  1. Kugler, Tamar & Neeman, Zvika & Vulkan, Nir, 2006. "Markets versus negotiations: An experimental investigation," Games and Economic Behavior, Elsevier, vol. 56(1), pages 121-134, July.
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  18. Thomas Gehrig, 1993. "Intermediation in Search Markets," Discussion Papers 1058, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  19. Pagano, Marco, 1986. "Trading Volume and Asset Liquidity," CEPR Discussion Papers 142, C.E.P.R. Discussion Papers.
  20. Darrell Duffie & Nicolae Garleanu & Lasse Heje Pedersen, 2005. "Over-the-Counter Markets," Econometrica, Econometric Society, vol. 73(6), pages 1815-1847, November.
  21. Li, Yiting, 1998. "Middlemen and private information," Journal of Monetary Economics, Elsevier, vol. 42(1), pages 131-159, June.
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