Instability of Centralized Markets
29 Pages Posted: 4 Aug 2017
Date Written: August 2, 2017
Centralized markets reduce the costs of search for buyers and sellers. Their ‘thickness’ increases the chance of order execution at competitive prices. In spite of the incentives to consolidate, some markets, securities markets and online advertising, being the most notable, are fragmented into multiple trading venues. We argue that fragmentation is an inevitable feature of any centralized market except in certain special circumstances.
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