Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/79586
Authors: 
Dönges, Jutta
Heinemann, Frank
Daniëls, Tijmen R.
Year of Publication: 
2013
Series/Report no.: 
SFB 649 Discussion Paper 2013-007
Abstract: 
The allocation of order flow to alternative trading systems can be understood as a game with strategic substitutes between buyers on the same side of the market, as well as one of positive network externalities. We consider the allocation of order flow between a crossing network and a dealer market and show that small differences in traders' preferences generate a unique switching equilibrium, in which patient traders use the crossing network while impatient traders submit orders directly to the dealer market. Our model explains why assets with large turnovers and low price volatility are likely to be traded on crossing networks, while less liquid assets are traded on dealer markets.
Subjects: 
trading platform
order flow
strategic complements
strategic substitutes
global game
JEL: 
C62
G10
G20
Document Type: 
Working Paper

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