Publication Type

Journal Article

Version

publishedVersion

Publication Date

9-2026

Abstract

We show in a model of RFQ trading that customers may admit only a few dealers, even when more are available, to induce maximum liquidity supply—“less can be more.” The number of admitted dealers is pinned down by a competition elasticity, shaped by dealers’ cost to respond to RFQs. For example, higher search (operating) costs increase (reduce) admitted dealers. A social planner would mandate even fewer dealers than the market outcome, because customers induce excessive dealer competition. The model predicts endogenous market power, yields implications for regulation and design of electronic platforms, and speaks to customer-dealer interactions under market stress.

Keywords

Over-the-counter markets, Request-for-quote platforms, Dealer competition, Liquidity provision, Market design

Discipline

Finance | Finance and Financial Management

Research Areas

Finance

Publication

Journal of Economic Theory

Volume

236

First Page

1

Last Page

28

ISSN

0022-0531

Identifier

10.1016/j.jet.2026.106223

Publisher

Elsevier

Copyright Owner and License

Authors-CC-BY

Creative Commons License

Creative Commons Attribution 3.0 License
This work is licensed under a Creative Commons Attribution 3.0 License.

Additional URL

https://doi.org/10.1016/j.jet.2026.106223

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