On Competitive Nonlinear Pricing

Andrea Attar, Thomas Mariotti and François Salanié
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Thomas Mariotti: Toulouse School of Economics

No 314, CEIS Research Paper from Tor Vergata University, CEIS

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 stand in stark contrast with those obtained so far in the literature, reflecting different assumptions about the richness of the insider's information.

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)
Pages: 45 pages
Date: 2014-04-18, Revised 2014-04-18
New Economics Papers: this item is included in nep-cta, nep-mic and nep-mst
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6)

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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 (2015)
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