Over-the-Counter Markets

  title={Over-the-Counter Markets},
  author={Darrell Duffie and Nicolae G{\^a}rleanu and Lasse Heje Pedersen},
  journal={NYU: Salomon Center (Topic)},
We study how intermediation and asset prices in over-the-counter markets are affected by illiquidity associated with search and bargaining. We compute explicitly the prices at which investors trade with each other as well as marketmakers' bid and ask prices in a dynamic model with strategic agents. Bid-ask spreads are lower if investors can more easily find other investors, or have easier access to multiple marketmakers. With a monopolistic marketmaker, bid-ask spreads are higher if investors… 

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