Simultaneous Multilateral Search
42 Pages Posted: 6 Jun 2019
Date Written: May 17, 2019
We study simultaneous multilateral search (SMS) in an over-the-counter market: when searching, an investor contacts several potential counterparties and then chooses to trade with the one offering the best quote. Search intensity (how frequently one can search) and search capacity (how many potential counterparties one can contact) affect equilibrium objects differently. Despite investor homogeneity, quote dispersion arises in equilibrium, with bids possibly crossing asks. We contrast SMS to bilateral bargaining (BB), where investors engage in Nash bargaining with one potential counterparty each time. Given the choice, investors might prefer BB over SMS, hurting allocative efficiency.
Keywords: request-for-quote, over-the-counter market, search, bargaining
JEL Classification: D4, G1
Suggested Citation: Suggested Citation