Markets versus negotiations: The predominance of centralized markets

Zvika Neeman, Nir Vulkan

Research output: Contribution to journalArticlepeer-review

Abstract

The paper considers the consequences of competition between two widely used exchange mechanisms, a "decentralized bargaining" market, and a "centralized" market. In every period, members of a large heterogenous group of privately-informed traders who each wish to buy or sell one unit of some homogenous good may opt for trading through one exchange mechanism. Traders may also postpone their trade to a future period. It is shown that trade outside the centralized market completely unravels. In every strong Nash equilibrium, all trade takes place in the centralized market. No trade ever occurs through direct negotiations.

Original languageEnglish
Article number6
JournalB.E. Journal of Theoretical Economics
Volume10
Issue number1
DOIs
StatePublished - 2010

Keywords

  • Centralized markets
  • Competition
  • Decentralized bargaining
  • Decentralized markets
  • Market microstructure

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