TY - JOUR
T1 - Discrete pricing and the design of dealership markets
AU - Bernhardt, Dan
AU - Hughson, Eric
N1 - Funding Information:
* We wish to thank seminar participants at The California Institute of Technology, Columbia University, Queen’s University, UBC, UCLA, Stanford University, the winter meetings of the Econometric Society, the Western Finance Association meetings, and especially Peter Algert, Peter Bossaerts, Ian Domowitz, Burton Hollifield, and Bart Lipman for valuable comments. The first author acknowledges financial support from SSHRC. Portions of this work were completed while the second author was at the California Institute of Technology and at the University of British Columbia. This paper incorporates results from and supersedes ‘‘Discrete Pricing and Dealer Competition.’’ We take sole responsibility for any errors that remain.
PY - 1996/10
Y1 - 1996/10
N2 - This paper incorporates institutional features of trading markets including the discrete nature of the price grid and determines the consequences for prices and strategic behavior. Interactions between market makers is complex: because equilibrium prices are not determined by a zero-expected-profits condition, priority rules and the timing of offers have significant effects on equilibrium outcomes. Discreteness effectively limits competition and permits market makers to offer profitable quotes. When traders first submit orders, absolute time priority leads to the "best" price schedule, one which is "better" than that obtained from quote-driven institutions where market makers submit price schedules first. Journal of Economic Literature Classification Numbers: D82, G14.
AB - This paper incorporates institutional features of trading markets including the discrete nature of the price grid and determines the consequences for prices and strategic behavior. Interactions between market makers is complex: because equilibrium prices are not determined by a zero-expected-profits condition, priority rules and the timing of offers have significant effects on equilibrium outcomes. Discreteness effectively limits competition and permits market makers to offer profitable quotes. When traders first submit orders, absolute time priority leads to the "best" price schedule, one which is "better" than that obtained from quote-driven institutions where market makers submit price schedules first. Journal of Economic Literature Classification Numbers: D82, G14.
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U2 - 10.1006/jeth.1996.0113
DO - 10.1006/jeth.1996.0113
M3 - Article
AN - SCOPUS:0030269222
SN - 0022-0531
VL - 71
SP - 148
EP - 182
JO - Journal of Economic Theory
JF - Journal of Economic Theory
IS - 1
ER -