 Bid Ask Price Competition with Asymmetric Information Between Market MakersStefano Lovo and Riccardo Calcagno Post-Print from HAL Abstract: This paper studies the effect of asymmetric information on the price formation process in a quote-driven market. One market maker receives private information on the value of the quoted asset, and repeatedly competes with market makers who are uninformed. We show that despite the fact that the informed market maker's quotes are public, the market is never strong-form efficient with certainty until the last stage. We characterize a reputational equilibrium in which the informed market-maker influences and possibly misleads the uninformed market makers' beliefs. At this equilibrium, a price leadership effect arises, the informed market maker's expected payoff is positive and the rate of price discovery increases in the last stages of trade Keywords: Bid; Bid Ask Price Competition; Price Competition; Asymmetric Information; Market Makers (search for similar items in EconPapers) Published in Review of Economic Studies, 2006, 73 (2), pp.329-355 There are no downloads for this item, see the EconPapers FAQ for hints about obtaining it. Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:halshs-00119559 Access Statistics for this paper More papers in Post-Print from HAL |
Is your work missing from RePEc? Here is how to contribute.
Questions or problems? Check the EconPapers FAQ or send mail to .
EconPapers is hosted by the
School of Business at Örebro University.