@techreport{Reitz2012Financial,
abstract = {Though unambiguously outperforming all other financial markets in terms of liquidity, foreign exchange trading is still performed in opaque and decentralized markets. In particular, the two-tier market structure consisting of a customer segment and an interdealer segment to which only market makers have access gives rise to the possibility of price discrimination. We provide a theoretical foreign exchange pricing model that accounts for market power considerations and analyze a database of the trades of a German market maker and his cross section of end-user customers. We find that the market maker generally exerts low bargaining power vis-\'{a}-vis his customers. The dealer earns lower average spreads on trades with financial customers than commercial customers, even though the former are perceived to convey exchange-rate-relevant information. From this perspective, it appears that market makers provide interdealer market liquidity to end-user customers with cross-sectionally differing spreads.},
address = {Kiel},
author = {Stefan Reitz and Markus A. Schmidt and Mark P. Taylor},
copyright = {http://www.econstor.eu/dspace/Nutzungsbedingungen},
keywords = {F31; 330; foreign exchange; market microstructure; pricing behavior},
language = {eng},
number = {1794},
publisher = {Kiel Institute for the World Economy (IfW)},
title = {Financial intermediation and the role of price discrimination in a two-tier market},
type = {Kiel Working Paper},
url = {http://hdl.handle.net/10419/64828},
year = {2012}
}
