Instability of Centralized Markets

Ahmad Peivandi and Rakesh V. Vohra

Econometrica, 2021, vol. 89, issue 1, 163-179

Abstract: Centralized markets reduce search for buyers and sellers. Their “thickness” increases the chance of order execution at nearly competitive prices. In spite of the incentives to consolidate, some markets, securities markets and on‐line advertising being the most notable, are fragmented into multiple trading venues. We argue that fragmentation is an inevitable feature of any centralized market except in special circumstances.

Date: 2021
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