Briefing
How Secondary Trade Affects Social Welfare in an Over-the-Counter Market
Trachter, Nicholas; Cooper-Ohm, Spencer (2025-12-29)
Over-the-counter markets with secondary trade and an unfixed quantity of assets suffer from inefficiency stemming from a double-sided hold-up problem between consumers and intermediaries.The inefficiency cannot be resolved through bargaining power alone, since efficiency would require both intermediaries and consumers to have full bargaining power.A budget neutral tax/subsidy scheme could resolve this inefficiency and increase social welfare by up to 13.3 percent.
Richmond Fed Economic Brief , Volume 25 , Issue 46