TY - JOUR
T1 - Markets versus negotiations
T2 - The predominance of centralized markets
AU - Neeman, Zvika
AU - Vulkan, Nir
N1 - Funding Information:
KEYWORDS: centralized markets, decentralized markets, decentralized bargaining, market microstructure, competition ∗We thank Alon Klement, Tamar Kugler, Muriel Niederle, Gerhard Orosel, Mark Satterthwaite, and Asher Wolinsky for useful discussions. Itzhak Gilboa provided especially valuable comments and suggestions. We also thank seminar participants at the NBER-Decentralization conference (Fall, 2000), BU, Cornell, Copenhagen, Haifa, Hebrew, Helsinky, Oxford, Tel-Aviv, and Vienna, an editor, and two anonymous referees, for their comments. The first draft of this paper was written while Neeman was visiting the Centre for Economic Learning and Social Evolution (ELSE) in University College London. We thank ELSE for their hospitality. Neeman is grateful for the generous financial support of the NSF under grant SBR-9806832. Vulkan is grateful for the generous financial support from EPSRC award GR MO7052.
PY - 2010
Y1 - 2010
N2 - 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.
AB - 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.
KW - Centralized markets
KW - Competition
KW - Decentralized bargaining
KW - Decentralized markets
KW - Market microstructure
UR - http://www.scopus.com/inward/record.url?scp=77249136565&partnerID=8YFLogxK
U2 - 10.2202/1935-1704.1554
DO - 10.2202/1935-1704.1554
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AN - SCOPUS:77249136565
SN - 1534-5955
VL - 10
JO - B.E. Journal of Theoretical Economics
JF - B.E. Journal of Theoretical Economics
IS - 1
M1 - 6
ER -