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A search model of centralized and decentralized trade

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  • Junjian Miao

    (Department of Economics, Boston University)

Abstract

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 determinants of bid–ask spreads and liquidity are 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. ? 2005 Elsevier Inc. All rights reserved.

Suggested Citation

  • Junjian Miao, "undated". "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.
    • Handle: RePEc:bos:macppr:wp2005-012
    as

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    File URL: http://people.bu.edu/miaoj/intermedRED.pdf
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    References listed on IDEAS

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    More about this item

    Keywords

    Search; Matching and bargaining; Bid–ask spread; Liquidity; Welfare; Walrasian equilibriummarkets;
    All these keywords.

    JEL classification:

    • D4 - Microeconomics - - Market Structure, Pricing, and Design
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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