Cash Providers: Asset Dissemination over Intermediation Chains
CEPR Discussion Paper No. DP10747
65 Pages Posted: 18 Mar 2014 Last revised: 16 Apr 2017
Date Written: April 12, 2017
Many financial assets are disseminated to final investors via chains of over-the-counter transactions between intermediaries (dealers). We model such an intermediation process as a game with successive take-it-or-leave-it offers: An agent buying some units of an asset can offer to sell part of the volume to another OTC partner, and so on. At the equilibrium of this game, the length of intermediation chains, the terms of trade (prices and units sold) and their pattern along a chain are endogenously determined. Our model thus gives a framework to analyze how intermediation chains impact an asset's market liquidity, its issuance, and who ultimately holds the asset.
Keywords: intermediation chains, liquidity, OTC markets, dealer markets
JEL Classification: C78, D85, G21, G23
Suggested Citation: Suggested Citation