How Secondary Trade Affects Social Welfare in an Over-the-Counter Market

Spencer Cooper-Ohm and Nicholas Trachter

Richmond Fed Economic Brief, 2025, vol. 25, issue 46

Abstract: Over-the-counter markets with secondary trade and an unfixed quantity of assets suffer from inefficiency stemming from a double-sided hold-up problem between consumers and intermediaries. The inefficiency cannot be resolved through bargaining power alone, since efficiency would require both intermediaries and consumers to have full bargaining power. A budget neutral tax/subsidy scheme could resolve this inefficiency and increase social welfare by up to 13.3 percent.

Keywords: Financial; Institutions; and; Regulation (search for similar items in EconPapers)
Date: 2025
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