Template-Type: ReDIF-Paper 1.0

Author-Name: Junjian Miao
Author-X-Name-First: Junjian
Author-X-Name-Last: Miao
Author-Email: miaoj@bu.edu
Author-Workplace-Name: Department of Economics, Boston University

Title: A search model of centralized and decentralized trade

Abstract: This paper presents a search model of centralized and decentralized trade. In a centralized market, trades
are intermediated by market makers at publicly posted bid–ask prices. In a decentralized market, traders
search counterparties. Prices are negotiated and transactions are conducted in private meetings among
traders. Traders can choose which market to enter. The determinants of bid–ask spreads and liquidity are
analyzed. The welfare consequence of the market fragmentation is also analyzed. It is shown that compared
to the competitive market-making, monopolistic market-making may improve social welfare.
? 2005 Elsevier Inc. All rights reserved.

Length: 25 pages
Creation-Date: 
Revision-Date: 2005-10
Publication-Status: Published in Review of Economic Dynamics
File-URL: http://people.bu.edu/miaoj/intermedRED.pdf
File-Format: Application/pdf
File-Function: Revised version, 2005
Number: WP2005-012
Classification-JEL: D4; D83; G12
Keywords: Search; Matching and bargaining; Bid–ask spread; Liquidity; Welfare; Walrasian equilibriummarkets
Handle: RePEc:bos:macppr:WP2005-012