Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/129872 
Year of Publication: 
2015
Series/Report no.: 
IEHAS Discussion Papers No. MT-DP - 2015/22
Publisher: 
Hungarian Academy of Sciences, Institute of Economics, Budapest
Abstract (Translated): 
Market makers on financial markets often act as competitiors and step into cooperations with each other at the same time. Primarily, they quote prices for investors, thus providing liquidity on the customer market. But they also trade with each other in order to reduce their inventory risk. The interdealer markets differs from walrasian markets in three main features: the trades are bilateral, the players usually form trading networks, the players have different bargaining powers. This paper describes the situation when customer and interdealers markets are strongly interconnected and characterizes the market equilibrium. Moreover, we investigate on different pricing strategies followed by market makers on the customer markets, when interdealer risk allocation is allowed. In this setup market makers operate in a duopoly on the customer market, and trading counterparties with different bargaining power on the interdealer markets. We show that the presence of an interdealer market reduces the market powers on the customer markets. We find also that the more risk averse market makers are, the lesser the market power on the customer market.
Subjects: 
market maker behavior
interdealer markets
risk allocation
financial markets
market microstructures
JEL: 
G10
D43
D53
ISBN: 
978-615-5447-83-9
Document Type: 
Working Paper

Files in This Item:
File
Size
519.61 kB





Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.