Competition for order flow as a coordination game

  • Competition for order flow can be characterized as a coordination game with multiple equilibria. Analyzing competition between dealer markets and a crossing network, we show that the crossing network is more stable for lower traders’ disutilities from unexecuted orders. By introducing private information, we prove existence of a unique equilibrium with market consolidation. Assets with low volatility and large volumes are traded on crossing networks, others on dealer markets. Efficiency requires more assets to be traded on crossing networks. If traders’ disutilities differ sufficiently, a unique equilibrium with market fragmentation exists. Low disutility traders use the crossing network while high disutility traders use the dealer market. The crossing network’s market share is inefficiently small.

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Author:Frank Heinemann, Jutta Dönges
Parent Title (English):Universität Frankfurt am Main. Fachbereich Wirtschaftswissenschaften: [Working paper series / Finance and accounting] Working paper series, Finance & Accounting ; No. 64
Series (Serial Number):Working paper series / Johann-Wolfgang-Goethe-Universität Frankfurt am Main, Fachbereich Wirtschaftswissenschaften : Finance & Accounting (064)
Publisher:Univ., Fachbereich Wirtschaftswiss.
Place of publication:Frankfurt am Main
Document Type:Working Paper
Year of Completion:2001
Year of first Publication:2001
Publishing Institution:Universitätsbibliothek Johann Christian Senckenberg
Release Date:2005/10/11
GND Keyword:Wertpapierhandel; Wertpapiermarkt; Auftrag; Börse; Börsenhandel; Wertpapierbörse; Xetra-Handelssystem; Börseninformationssystem; Electronic Commerce; Wettbewerb; Wettbewerbsfreiheit; Wettbewerbsfähigkeit; Spieltheorie
Issue:January 25, 2001
Page Number:40
Institutes:Wirtschaftswissenschaften / Wirtschaftswissenschaften
Dewey Decimal Classification:3 Sozialwissenschaften / 33 Wirtschaft / 330 Wirtschaft
Licence (German):License LogoDeutsches Urheberrecht