Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/298026 
Year of Publication: 
2024
Series/Report no.: 
Tinbergen Institute Discussion Paper No. TI 2024-019/IV
Publisher: 
Tinbergen Institute, Amsterdam and Rotterdam
Abstract: 
We rationalize exclusive portfolio dealing in a novel three-period partial equilibrium framework populated by a representative, risk-neutral seller and a small number of ex ante identical broker-dealers. Endowed with independent, uncertain demand for a representative asset, the broker-dealers may compete in prices for exclusivity. If no exclusivity is granted, due to either the lack or seller rejection of offers, the seller enters a second-price auction with a zero-loss reserve price. While seller profits are constant under exclusivity (Bertrand Paradox), auction profits increase in the number of broker-dealers. Therefore, exclusivity arises in equilibrium only for a seller with at most two broker-dealers, reducing the trade frequency by one-third. The results are robust to endogenizing the number of broker-dealers and to allowing for the ex post asymmetry in asset demand. Exclusivity, however, does not arise when the auction features a seller-optimal reserve price. We motivate and conclude with an application to the security lending market.
Subjects: 
Exclusive Dealing
Intermediated Markets
Competition
Market Efficiency
JEL: 
G14
G24
D43
D86
Document Type: 
Working Paper

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