A Search Model of Centralized and Decentralized Trade

38 Pages Posted: 18 Oct 2004

See all articles by Jianjun Miao

Jianjun Miao

Boston University - Department of Economics

Date Written: April 2004

Abstract

This paper presents a search model of centralized and decentralized trade. In a centralized market, trades are intermediated by market makers at publicly posted bid-ask prices. In a decentralized market, traders search counterparties. Prices are negotiated and transactions are conducted in private meetings among traders. Traders can choose which market to enter. The determinant of bid-ask spreads and liquidity is analyzed. The welfare consequence of the market fragmentation is also analyzed. Some limiting results and convergence to the Walrasian equilibrium as search fricitions or transaction costs vary are established.

Keywords: Search, matching and bargaining, bid-ask spread, liquidity, welfare, Walrasian equilibrium

Suggested Citation

Miao, Jianjun, A Search Model of Centralized and Decentralized Trade (April 2004). Available at SSRN: https://ssrn.com/abstract=605941 or http://dx.doi.org/10.2139/ssrn.605941

Jianjun Miao (Contact Author)

Boston University - Department of Economics ( email )

270 Bay State Road
Boston, MA 02215
United States
617-353-6675 (Phone)

HOME PAGE: http://people.bu.edu/miaoj

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