Price Competition between Market Makers

Abstract

The paper explicitly models price competition in financial markets in which prices are quoted by competing dealers before future demand is observed. The strategic behaviour of informed insiders and uninformed liquidity traders implies that a growing number of market makers leads to a higher risk exposure for the individual market maker which induces higher individual bid-ask-spreads and higher transaction costs for the liquidity traders. Under certain conditions liquidity traders would prefer a monopolistic market maker rather than several competing market makers. The results hold under various assumptions on the strategy space of the market makers.

Cite this work

No public copy is stored for this record, so only the metadata is cited.

Stored only when both papers are in the corpus — 117 citations exist upstream.

Papers that cite the same references — the relational fallback while embeddings are still backfilling.