The limits of multi-dealer platforms

Chaojun Wang

Journal of Financial Economics, 2023, vol. 149, issue 3, 434-450

Abstract: On many important multi-dealer platforms, customers mostly request quotes from very few dealers. I build a model of multi-dealer platforms, where dealers strategically choose to respond to or ignore a request. If the customer contacts more dealers, each dealer responds with a lower probability and offers a stochastically worse price when responding. Dealers’ strategic avoidance of competition overturns the customer’s benefit from potentially receiving more quotes, worsening her best-overall price. In equilibrium, the customer contacts only two dealers. Multi-dealer platforms have limited ability to promote price competition: No design of information disclosure can improve the customer’s payoff above this outcome.

Keywords: Over-the-counter; Multi-dealer platforms; Request for quote; Pre-trade transparency (search for similar items in EconPapers)
Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jfinec:v:149:y:2023:i:3:p:434-450

DOI: 10.1016/j.jfineco.2023.05.005

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