Marzena Rostek (University of Wisconsin-Madison)

“Decentralized Exchange”

abstract

This paper develops an equilibrium model of decentralized trading which accommodatesany coexisting exchanges, including networks and more general, common market structuresrepresented by hypergraphs. The model allows for any number of strategic traders and multipledivisible assets. We characterize equilibrium and welfare, and develop comparative statics withrespect to preferences, assets and market structures. Asset substitutability or complementarityis not determined by the primitive payoff covariance but is endogenous and may differ acrossagents, depending on their participation in the exchanges. Changes in market structure thatincrease price impact may increase welfare.