Competing for Order Flow in OTC Markets.

We develop a model of a two-sided asset market in which trades are intermediated by dealers and are bilateral. Dealers compete to attract order flow by posting the terms at which they execute trades-which can include prices, quantities, and execution speed-and investors direct their orders toward dealers who offer the most attractive terms. We characterize the equilibrium in a general setting, and we illustrate theoretically and numerically how the model can account for several important trading patterns in over-the-counter markets, which do not emerge from existing models. [ABSTRACT FROM AUTHOR]