Firstly, let us note that the equilibrium bidding schedule is flatter in the limit order market (8.15) than in the uniform price market (8.17); this is because with price discrimination, competition for liquidity provision intensifies. Figure 8.1 plots the bid schedule under the discriminatory (8.16) and the uniform pricing rules (8.18) for different numbers of dealers: competition modifies only the slope of the uniform pricing schedule, but for the discriminatory schedule it also changes the intercept.
As mentioned, the model in Viswanathan andWang (2002) does not allow for asymmetric information among market participants. Biais, Martimort and Rochet (2000) introduce adverse selection in a model with the discriminatory pricing rule and show how imperfect competition among dealers within an LOB can be modelled as a game with multiple principals, where each dealer (principal) chooses his optimal trading strategy under the participation and incentive constraints of the investor (agent).
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