On Competitive Nonlinear Pricing

Attar, Andrea, Mariotti, Thomas and Salanié, François (2019) On Competitive Nonlinear Pricing. Theoretical Economics, vol. 14 (n° 1). pp. 297-343.

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Abstract

We study a discriminatory limit-order book in which market makers compete in nonlinear tariffs to serve a privately informed insider. Our model allows for general nonparametric specifications of preferences and arbitrary discrete distributions for the insider's private information. Adverse selection severely restricts equilibrium outcomes: in any pure-strategy equilibrium with convex tariffs, pricing must be linear and at most one type can trade, leading to an extreme form of market breakdown. As a result, such equilibria only exist under exceptional circumstances that we fully characterize. These results are strikingly different from those of existing analyses that postulate a continuum of types. The two approaches can be reconciled when we consider "- equilibria of games with a large number of market makers or a large number of types.

Item Type:	Article
Language:	English
Date:	January 2019
Refereed:	Yes
Uncontrolled Keywords:	Adverse Selection, Competing Mechanisms, Limit-Order Book
JEL Classification:	D43 - Oligopoly and Other Forms of Market Imperfection D82 - Asymmetric and Private Information D86 - Economics of Contract - Theory
Subjects:	B- ECONOMIE ET FINANCE
Divisions:	TSE-R (Toulouse)
Site:	UT1
Date Deposited:	20 Jul 2018 09:21
Last Modified:	26 Jul 2019 07:57
["eprint_fieldname_oai_identifier" not defined]:	oai:tse-fr.eu:32852
URI:	http://publications.ut-capitole.fr/id/eprint/26141

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• On Competitive Nonlinear Pricing. (deposited 23 Nov 2016 08:56)
  • On Competitive Nonlinear Pricing. (deposited 20 Jul 2018 09:21) [Currently Displayed]

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