Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/185709
Authors: 
Bielagk, Jana
Horst, Ulrich
Moreno-Bromberg, Santiago
Year of Publication: 
2017
Series/Report no.: 
Discussion Paper No. 39
Abstract: 
We use a model with agency frictions to analyze the structure of a dealer market that faces competition from a crossing network. Traders are privately informed about their types (e.g. their portfolios), which is something the dealer must take into account when engaging his counterparties. Instead of participating in the dealer market, the traders may take their business to a crossing network. We show that the presence of such a network results in more trader types being serviced by the dealer and that, under certain conditions, the book\'s spread shrinks. We allow for the pricing on the dealer market to determine the structure of the crossing network and show that the same conditions that lead to a reduction of the spread imply the existence of an equilibrium book or crossing network pair.
Subjects: 
asymmetric information
crossing networks
dealer markets
non-linear pricing
principal-agent games
JEL: 
D42
D53
G12
G14
Document Type: 
Working Paper

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