Reducible Intermediation Chains

40 Pages Posted: 28 Mar 2016 Last revised: 30 Oct 2019

See all articles by Yu An

Yu An

Johns Hopkins Carey Business School

Yang Song

University of Washington - Michael G. Foster School of Business

Xingtan Zhang

University of Colorado at Boulder - Department of Finance

Date Written: October 25, 2019

Abstract

We introduce reducible intermediation chains in order to study the intermediation incentives of corporate bond dealers. We find that three quarters of intermediation chains mitigate search frictions, while the remaining one-quarter of chains arise due to the dealers' rent-seeking incentive. We provide an OTC model à la Stahl (1989) and show that an additional competition channel is necessary for the rent-seeking story to apply in the corporate bond markets.

Keywords: Intermediation chain, Search frictions, Over-the-counter

JEL Classification: G1, G12, D4, D83

Suggested Citation

An, Yu and Song, Yang and Zhang, Xingtan, Reducible Intermediation Chains (October 25, 2019). Available at SSRN: https://ssrn.com/abstract=2754235 or http://dx.doi.org/10.2139/ssrn.2754235

Yu An

Johns Hopkins Carey Business School ( email )

100 International Drive
Baltimore, MD 21202
United States

Yang Song (Contact Author)

University of Washington - Michael G. Foster School of Business ( email )

Box 353200
Seattle, WA 98195-3200
United States

Xingtan Zhang

University of Colorado at Boulder - Department of Finance ( email )

Campus Box 419
Boulder, CO 80309
United States

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