ABSTRACT
We examine the network of trading relationships between insurers and dealers in the overâtheâcounter corporate bond market. Regulatory data show that oneâthird of insurers use a single dealer, while other insurers have large dealer networks. Execution prices are nonmonotone in network size, initially declining with more dealers but increasing once networks exceed 20 dealers. A model of decentralized trade in which insurers trade off the benefits of repeat business and faster execution quantitatively fits the distribution of insurers' network size and explains the priceânetwork size relationship. Counterfactual analysis shows that regulations to unbundle trade and nontrade services can decrease welfare.
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