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Competition and Information Leakage
Resource type
Authors/contributors
- Baldauf, Markus (Author)
- Mollner, Joshua (Author)
Title
Competition and Information Leakage
Abstract
When seeking to trade in over-the-counter markets, institutional investors typically restrict both the number of potential counterparties they contact and the information they disclose (e.g., by requesting two-sided rather than one-sided quotes). We rationalize these important facts in a model featuring endogenous front-running. Although an additional contact intensifies competition and aids in finding a natural counterparty, it also intensifies information leakage?which can be costly if it helps a losing dealer to front-run. We also address information design: the client optimally provides no information about her trading direction when requesting quotes. We conclude with implications for market design and regulation.
Publication
Journal of Political Economy
Volume
132
Issue
5
Pages
1603-1641
Date
2024-05-01
DOI
ISSN
0022-3808
Accessed
2024-06-27
Extra
Publisher: The University of Chicago Press
Citation
Baldauf, M., & Mollner, J. (2024). Competition and Information Leakage. Journal of Political Economy, 132, 1603–1641.
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