Benchmarks in Search Markets

Darrell Duffie, Piotr Dworczak and Haoxiang Zhu

Research Papers from Stanford University, Graduate School of Business

Abstract: We analyze the role of benchmarks in over-the-counter markets subject to search frictions. The publication of a benchmark can, under conditions, raise total social surplus by (i) increasing the volume of beneficial trade, (ii) reducing total search costs, and (iii) facilitating more efficient trade matching between dealers and customers. Although the improvement in market transparency caused by benchmarks may lower dealer profit margins on each trade, dealers may nevertheless introduce a benchmark such as LIBOR in order to encourage greater market participation by investors. In some cases, the lowest-cost dealers may introduce a benchmark in order to increase their market share through reducing entry by high-cost dealers, a further source of efficiency gain.

JEL-codes: D43 D47 D83 G12 G14 G18 G21 G23 (search for similar items in EconPapers)
Date: 2014-11
New Economics Papers: this item is included in nep-mfd
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Citations: View citations in EconPapers (9)

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Related works:
Journal Article: Benchmarks in Search Markets (2017)
Working Paper: Benchmarks in Search Markets (2015)
Working Paper: Benchmarks in Search Markets (2014)
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Persistent link: https://EconPapers.repec.org/RePEc:ecl:stabus:3190

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