Benchmarks in Search Markets
Name
w20620.pdf
Size
704.31 KB
Format
Adobe PDF
Checksum (MD5)
ea263cfba8dae1ffbaf1560a7f44a8ee
Author(s)
DUFFIE, DARRELL
DWORCZAK, PIOTR
Zhu, Haoxiang
Date Issued
July 2017
Journal
The Journal of Finance
Publisher
Wiley
Citation
DUFFIE, DARRELL, PIOTR DWORCZAK, and HAOXIANG ZHU. “Benchmarks in Search Markets.” The Journal of Finance 72, no. 5 (July 10, 2017): 1983–2044.
Version
Original manuscript
Abstract
We characterize the role of benchmarks in price transparency of over-the-counter markets. A benchmark can raise social surplus by increasing the volume of beneficial trade, facilitating more efficient matching between dealers and customers, and reducing search costs. Although the market transparency promoted by benchmarks reduces dealers' profit margins, dealers may nonetheless introduce a benchmark to encourage greater market participation by investors. Low-cost dealers may also introduce a benchmark to increase their market share relative to high-cost dealers. We construct a revelation mechanism that maximizes welfare subject to search frictions, and show conditions under which it coincides with announcing the benchmark.
MIT Department
Sloan School of Management
Terms of Use
Creative Commons Attribution-Noncommercial-Share Alike
Persistent DSpace Link
DOI of Published Version
https://doi.org/10.1111/JOFI.12525
