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Centralized vs Decentralized Markets: The Role of Connectivity

Author

Listed:
  • Simone Alfarano

    (Universitat Jaume I)

  • Albert Banal-Estañol

    (Universitat Pompeu Fabra; Barcelona School of Economics; Barcelona School of Management; City, University of London)

  • Eva Camacho

    (Universitat Jaume I)

  • Giulia Iori

    (Ca’ Foscari University of Venice; City, University of London)

  • Burcu Kapar

    (University of Wollongong)

  • Rohit Rahi

    (London School of Economics)

Abstract

We consider a setting in which privately informed agents are located in a network and trade a risky asset with other agents with whom they are directly connected. We compare the performance, both theoretically and experimentally, of a complete network (centralized market) to incomplete networks with differing levels of connectivity (decentralized markets). We show that decentralized markets can deliver higher informational efficiency, with prices closer to fundamentals, as well as higher welfare for mean-variance investors.

Suggested Citation

  • Simone Alfarano & Albert Banal-Estañol & Eva Camacho & Giulia Iori & Burcu Kapar & Rohit Rahi, 2025. "Centralized vs Decentralized Markets: The Role of Connectivity," Working Papers 2025: 13, Department of Economics, University of Venice "Ca' Foscari".
    • Handle: RePEc:ven:wpaper:2025:13
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    JEL classification:

    • C92 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Group Behavior
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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