Bid-ask spreads in multiple dealer settings: Some experimental evidence

Lucy Ackert and Bryan K. Church

No 98-9, FRB Atlanta Working Paper from Federal Reserve Bank of Atlanta

Abstract: We report the results of an experiment designed to investigate the behavior of quoted spreads in multiple-dealer markets. We manipulate verbal communication (not allowed and allowed) and order preferencing (not allowed, allowed, and allowed with order-flow payment) between eighteen sessions. Without preferencing, spreads are wider when communication is allowed. With preferencing (and no order-flow payments), individuals do not have incentives to narrow the spread and a wide spread may be maintained without a collusive agreement. However, spreads narrow somewhat when individuals are given the opportunity to compete using alternatives to price (that is, payment for order flow).

Keywords: Financial; markets (search for similar items in EconPapers)
Date: 1998
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Published in Financial Management, Spring 1999

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Journal Article: Bid-Ask Spreads in Multiple Dealer Settings: Some Experimental Evidence (1999)
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