Title

Microstructure With Multiple Assets: An Experimental Investigation Into Direct And Indirect Dealer Competition

Keywords

Dealer competition; Market microstructure

Abstract

This paper uses the economic laboratory to isolate the effects of direct and indirect competition on dealer profitability. We compare these two settings: (1) three competing dealers in a single asset (direct competition) with (2) three assets with a monopoly dealer in each (indirect competition). We find that: bid-ask spreads are wider, prices are less responsive to order flow (so there is less price discovery), and per-trade dealer profits are larger in the single-asset setting. Important economic differences between these two settings include a heightened adverse selection problem in the three-asset setting and a public good nature of price discovery in the one-asset setting. © 2003 Elsevier B.V. All rights reserved.

Publication Date

2-1-2004

Publication Title

Journal of Financial Markets

Volume

7

Issue

2

Number of Pages

117-143

Document Type

Article

Personal Identifier

scopus

DOI Link

https://doi.org/10.1016/S1386-4181(03)00030-2

Socpus ID

0742271791 (Scopus)

Source API URL

https://api.elsevier.com/content/abstract/scopus_id/0742271791

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