Intermediation in Over-the-Counter Markets with Price Transparency

Miroslav Gabrovski and Ioannis Kospentaris

No 202017, Working Papers from University of Hawaii at Manoa, Department of Economics

Abstract: A salient feature of over-the-counter (OTC) markets is intermediation: dealers buy from and sell to customers as well as other dealers. Traditionally, the search-theoretic literature of OTC markets has rationalized this as a consequence of random meetings and ex post bargaining between investors. We show that neither of these are necessary conditions for intermediation. We build a model of a fully decentralized OTC market in which search is directed and sellers post prices ex ante. Intermediation arises naturally as an equilibrium outcome for a broad class of matching functions commonly used in the literature. We also explore the sorting implications of the equilibrium pattern of trade and show that it is constrained efficient.

Keywords: Over-the-Counter Markets; Search Frictions; Intermediation; Price Transparency; Competitive Search; Sorting (search for similar items in EconPapers)
JEL-codes: D83 G11 G12 G21 (search for similar items in EconPapers)
Date: 2020-07
New Economics Papers: this item is included in nep-ban
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
http://www.economics.hawaii.edu/research/workingpapers/WP_20-17.pdf First version, 2020 (application/pdf)

Related works:
Journal Article: Intermediation in over-the-counter markets with price transparency (2021)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:hai:wpaper:202017

Ordering information: This working paper can be ordered from
http://www.economics ... esearch/working.html

Access Statistics for this paper

More papers in Working Papers from University of Hawaii at Manoa, Department of Economics Contact information at EDIRC.
Bibliographic data for series maintained by Web Technician ().