On Competitive Nonlinear Pricing

Salanié, François, Thomas Mariotti and Andrea Attar
Authors registered in the RePEc Author Service: François Salanié

No 10850, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: Many financial markets rely on a discriminatory limit-order book to balance supply and demand. We study these markets in a static model in which uninformed market makers compete in nonlinear tariffs to trade with an informed insider, as in Glosten (1994), Biais, Martimort, and Rochet (2000), and Back and Baruch (2013). We analyze the case where tariffs are unconstrained and the case where tariffs are restricted to be convex. In both cases, we show that pure-strategy equilibrium tariffs must be linear and, moreover, that such equilibria only exist under exceptional circumstances. These results cast doubt on the stability of even well-organized financial markets.

Keywords: Adverse selection; Competing mechanisms; Limit-order book (search for similar items in EconPapers)
JEL-codes: D43 D82 D86 (search for similar items in EconPapers)
Date: 2015-09
New Economics Papers: this item is included in nep-com and nep-mic
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (9)

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Related works:
Journal Article: On competitive nonlinear pricing (2019)
Working Paper: On competitive nonlinear pricing (2019)
Working Paper: On Competitive Nonlinear Pricing (2018)
Working Paper: On Competitive Nonlinear Pricing (2018)
Working Paper: On Competitive Nonlinear Pricing (2014)
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