For bilateral bargaining in network markets, we show that holdup is eliminated when contracts are atomically settled with smart contracts. Applications include over-the-counter trading networks, purchases requiring third-party financing, and other multi-agent markets in which pairs of agents bargain bilaterally over terms that could potentially affect their outside-option values in negotiations with other firms. Under this protocol, the terms of a contract proposed to any firm can be given a “green light” by that firm, which automatically converts those terms into a binding contract if and only if the terms proposed to all other firms are also assigned green lights and thus likewise converted to contracts. We analyze tree-based networks, including hub-spoke and chain networks. Under mild technical conditions, the unique outcome of any Perfect Bayesian Equilibrium is immediate agreement on socially efficient contracts that generate equal expected gains for every firm.

We identify a widespread practice that counteracts fragmentation in the corporate bond market. On modern trading platforms, traders can simultaneously request quotes for many bonds from dealers, then trade against any subset of the dealers' quotes. Such List requests comprise 80% of all requests on MarketAxess, the largest corporate bond platform. Using the 10 million requests on MarketAxess in 2021-2022 linked to List-level identifiers, we document that traders substitute across bonds within the same List. Fifth of bonds in Lists are abandoned without a fill. Within a List, a bond quoted the higher-ranking spread is discontinuously more likely to fill than a bond quoted a nearly identical yet lower-ranking spread. Dealers intensively substitute within their Lists, whereas passive funds typically fill every bond in their Lists. The modern bond market evolved a simple mechanism to address fragmentation.

We introduce nonrival public goods to global games of regime change. Each investor in a large project is vanishingly unlikely to be pivotal for its survival. She also benefits from its enormous public goods. In equilibrium, this large benefit precisely counterbalances her vanishing pivotal likelihood, such that even an atomistic and selfish investor internalizes her marginal impact on project survival. Extended to an economy of firms, any divestment yields financial gains whenever it positively assorts projects’ public goods with investors’ sensitivities to those goods. Yet, such divestments can harm the social surplus. Our tractable framework rationalizes investor behavior during the Euro crisis, the collapse of Terra, and the 2023 bank runs.

We evaluate the enforcement of information barriers—China Walls—within conglomerates. Our setting is the 23 million trades in 2019-2024 in the Israeli Shekel market, where the US SEC imposes China Walls around dealers. Our difference-in-differences design compares the trade volumes and profits of funds that are affiliated with, clients of, or entirely unrelated to a dealer around the days when the dealer is especially likely to hold valuable information. Dealers never trade or share information with their affiliate funds, despite that they do share information with their clients, and funds within the same conglomerate do so among themselves. Our findings persist in crisis and noncrisis periods and across granular cells of fund and asset characteristics. From a back-of-the-envelope calculation, imposing China Walls around funds would eliminate $23.7 billion in trades. We reveal a remarkable regulatory capacity to control information flows within conglomerates.

In a tractable model of over-the-counter markets where each investor can arbitrarily distribute her search capacity across other investors, the holdings of an asset are endogenously concentrated among a subgroup of investors. Investors who are more likely to hold the asset search among those less likely to hold it, and vice versa. When directed search is allowed in those existing random search models that endogenize intermediation, intermediation ceases to be an equilibrium outcome and instead the concentration of asset holdings arises endogenously. My model explains the persistent imbalance between banks’ funding needs, and contributes novel predictions of asset concentration across investors and asymmetric price dispersion.

Contrary to the prediction of the classic adverse selection theory, more informed traders could receive better pricing relative to less informed traders in over-the-counter financial markets. Dealers actively chase informed orders to better position their future quotes and avoid winner's curse in subsequent trades. On a multi-dealer platform, dealers' incentive of information chasing exactly offsets their fear of adverse selection. In a more general setting, information chasing can dominate adverse selection when dealers face differentially informed speculators, while adverse selection dominates when dealers face differentially informed trades from a given speculator. These two seemingly contrasting predictions are supported by empirical evidence from the UK government bond market.

Core-periphery trading networks arise endogenously in over-the-counter markets as an equilibrium balance between trade competition and inventory efficiency. A small number of firms emerge as core dealers to intermediate trades among a large number of peripheral firms. The equilibrium number of dealers depends on two countervailing forces: (i) competition among dealers in their pricing of immediacy to peripheral firms, and (ii) the benefit of concentrated intermediation in balancing dealer inventory through dealers’ ability to quickly net purchases against sales. For an asset with a lower frequency of trade demand, intermediation is concentrated among fewer dealers, and interdealer trades account for a greater fraction of total trade volume. These two predictions are strongly supported by evidence from the Bund and U.S. corporate bond markets. From a welfare viewpoint, I show that there are too few dealers for assets with frequent trade demands, and too many for assets with infrequent trade demands.

We model bargaining in over-the-counter network markets over the terms and prices of contracts. Of concern is whether bilateral non-cooperative bargaining is sufficient to achieve efficiency in this multilateral setting. For example, will market participants assign insolvency-based seniority in a socially efficient manner, or should bankruptcy laws override contractual terms with an automatic stay? We provide conditions under which bilateral bargaining over contingent contracts is efficient for a network of market participants. Examples include seniority assignment, close-out netting and collateral rights, secured debt liens, and leverage-based covenants. Given the ability to use covenants and other contingent contract terms, central market participants efficiently internalize the costs and benefits of their counterparties through the pricing of contracts. We provide counterexamples to efficiency for less contingent forms of bargaining coordination.

Over-the-counter (OTC) trading thrives despite competition from exchanges. We let OTC dealers cream skim from exchanges in an otherwise standard Glosten and Milgrom (1985) framework. Restricting the dealer’s ability to cream skim induces “cheap substitution”: Some traders exit while others with larger gains from trade enter. Cheap substitution implies trading costs, trade volumes, and market shares are poor indicators for policy. In a benchmark case, restricting the dealer raises welfare only if trading cost increases, volume falls, and OTC market share is high. By contrast, the restriction improves welfare whenever adverse selection risk is low. A simple procedure implements the optimal Pigouvian tax.

We show that larger trades incur lower trading costs in government bond markets (“size discount”), but costs increase in trade size after controlling for client identity (“size penalty”). The size discount is driven by the cross-client variation of larger traders obtaining better prices, consistent with theories of trading with imperfect competition. The size penalty, driven by the within-client variation, is larger for corporate bonds, during major macroeconomic surprises and during COVID-19. These differences are larger among more sophisticated clients, consistent with information-based theories.

On many important multi-dealer platforms, customers mostly request quotes from very few dealers. I build a model of multi-dealer platforms, where dealers strategically choose to respond to or ignore a request. If the customer contacts more dealers, each dealer responds with a lower probability and offers a stochastically worse price when responding. Dealers' strategic avoidance of competition overturns the customer's benefit from potentially receiving more quotes, worsening her best-overall price. In equilibrium, the customer contacts only two dealers. Multi-dealer platforms have limited ability to promote price competition: No design of information disclosure can improve the customer's payoff above this outcome.