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Benchmarks in Search Markets / Darrell Duffie, Piotr Dworczak, Haoxiang Zhu.
- Format:
- Book
- Author/Creator:
- Duffie, Darrell.
- Series:
- Working Paper Series (National Bureau of Economic Research) no. w20620.
- NBER working paper series no. w20620
- Language:
- English
- Physical Description:
- 1 online resource: illustrations (black and white);
- Place of Publication:
- Cambridge, Mass. National Bureau of Economic Research 2014.
- Summary:
- We characterize the price-transparency role of benchmarks in over-the-counter markets. A benchmark can, under conditions, 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.
- Notes:
- Print version record
- October 2014.
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