Benchmarks in Search Markets

Darrell Duffie, Piotr Dworczak, Haoxiang Zhu

Research output: Contribution to journalArticlepeer-review

18 Scopus citations


We characterize the role of benchmarks in price transparency of over-the-counter markets. A benchmark can raise social surplus by increasing the volume of beneficial trade, facilitating more efficient matching between dealers and customers, and reducing search costs. Although the market transparency promoted by benchmarks reduces dealers' profit margins, dealers may nonetheless introduce a benchmark to encourage greater market participation by investors. Low-cost dealers may also introduce a benchmark to increase their market share relative to high-cost dealers. We construct a revelation mechanism that maximizes welfare subject to search frictions, and show conditions under which it coincides with announcing the benchmark.

Original languageEnglish (US)
Pages (from-to)1983-2044
Number of pages62
JournalJournal of Finance
Issue number5
StatePublished - Oct 2017

ASJC Scopus subject areas

  • Accounting
  • Finance
  • Economics and Econometrics

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