Discrete Pricing and the Design of Dealership Markets
38 Pages Posted: 20 May 1997
Abstract
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 offers have significant effects on equilibrium outcomes. Discreteness effectively limits competition and permits market makers to offer protable 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.
JEL Classification: D82, G14
Suggested Citation: Suggested Citation
Do you have negative results from your research you’d like to share?
Recommended Papers
-
An Ordered Probit Analysis of Transaction Stock Prices
By Jerry A. Hausman, Andrew W. Lo, ...
-
Impacts of Trades in an Error-Correction Model of Quote Prices
By Robert F. Engle and Andrew J. Patton
-
Impacts of Trades in an Error-Correction Model of Quote Prices
By Andrew J. Patton and Robert F. Engle
-
Dynamics of Trade-by-Trade Price Movements: Decomposition and Models
By Tina Hviid Rydberg and Neil Shephard