Benchmarks in Search Markets
By Darrell Duffie, Piotr Dworczak, Haoxiang Zhu. 2016
152 citations recorded by the source corpus.
We characterize the price-transparency role of benchmarks in over-the-counter markets. A benchmark can, under conditions, raise social surplus by increasing the volume of beneficial trade, facilitating more efficient matching between dealers and customers, and reducing search costs. Although the market transparency promoted by benchmarks reduces dealers' profit margins, dealers may nonetheless introduce a benchmark to encourage greater market participation by investors. Low-cost dealers may also introduce a benchmark to increase their market share relative to high-cost dealers. We construct a revelation mechanism that maximizes welfare subject to search frictions, and show conditions under which it coincides with announcing the benchmark.
Subfields: Management Science and Operations Research, Marketing, Strategy and Management
View Paper: https://www.semanticscholar.org/paper/2ef5f2453063391cdcd6028a641a63567b1782ef
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In Management Science and Operations Research
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Citations in the corpus
- The Simple Economics of Optimal Persuasion (2019, background): “Concurrent work by the first author (Duffie, Dworczak, and Zhu 2017) uses our results in amodel studying optimal pretrade transparency of financial over-the-counter markets.”
- Reforming LIBOR and Other Financial-Market Benchmarks (2015, background): “The solution proposed in our groups’ policy reports is to fix the IBORs using a much wider set of unsecured bank-borrowing transactions, not just those in the interbank market.”