Simultaneous Multilateral Search
52 Pages Posted: 6 Jun 2019 Last revised: 15 Dec 2019
Date Written: December 13, 2019
This paper studies simultaneous multilateral search (SMS) in over-the-counter (OTC) markets: when searching, an investor contacts several potential counterparties and then trades 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 market qualities differently. Contrasting SMS to bilateral bargaining (BB), the model shows that investors might favor BB over SMS if search intensity is high or in distress. Such preference for BB hurts allocative efficiency and suggests an intrinsic hindrance in the adoption of all-to-all and request-for-quote type of electronic trading in OTC markets.
Keywords: all-to-all, request-for-quote, over-the-counter market, search, bargaining
JEL Classification: D4, G1
Suggested Citation: Suggested Citation