Econometrica: Jan 2021, Volume 89, Issue 1

Instability of Centralized Markets
p. 163-179

Ahmad Peivandi, Rakesh V. Vohra

Centralized markets reduce search for buyers and sellers. Their “thickness” increases the chance of order execution at nearly competitive prices. In spite of the incentives to consolidate, some markets, securities markets and on‐line 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 special circumstances.

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