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Horizontally Differentiated Market Makers

Simon Loertscher

Diskussionsschriften from Universitaet Bern, Departement Volkswirtschaft

Abstract: I present a model of competition between two market makers who are horizontally differentiated. I first show that absent a search market for buyers and sellers, there is a continuum of symmetric equilibria. These equilibria are payoff equivalent for market makers, but affect buyers' and sellers' welfare in opposite ways. Second, I analyze the model when buyers and sellers can also exchange the good in search markets. The model with search markets shares many features with existing models, yet allows competing intermediaries to net a profit in equilibrium. Interestingly, the model exhibits a complementarity between intermediaries' profits in the presence of search markets. Third, I show that every equilibrium in a game with market makers is also an equilibrium in an appropriately defined game with matchmakers

Keywords: Market making; intermediation and search; horizontal differentiation; market microstructure (search for similar items in EconPapers)
JEL-codes: C72 D41 D43 L13 (search for similar items in EconPapers)
Date: 2005-09
New Economics Papers: this item is included in nep-com, nep-fmk and nep-ind
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