%0 Report %T Price Improvements in Financial Markets as a Screening Device %+ Groupement de Recherche et d'Etudes en Gestion à HEC (GREGH) %+ Théorie économique, modélisation et applications (THEMA) %A Foucault, Thierry %A Desgranges, Gabriel %Z Cahier de Recherche du Groupe HEC Paris, n° 716/2000 %8 2011-06-04 %D 2011 %K market design %K Market microstructure %K price improvements %Z Humanities and Social Sciences/Business administration/domain_shs.gestion.finReports %X In many security markets, market-makers offer to trade at a discount relative to their posted bid and ask quotes. In this article we provide an explanation to this phenomenon. We show that market-makers can mitigate informational asymmetries by selectively offering price improvements to their regular clients. We study a specific type of pricing strategy which consists (a) in offering price improvements to investors who have not repeatedly inflicted trading losses to the market-maker uses this pricing strategy, there are equilibria in which his clients optimally choose not to contact him when they have private information. These equilibria Pareto-dominate those which are obtained when the market-marker does not or can not make his quotes contingent on his clients' trading histories. Our Model predicts that (1) market-makers should grant price improvements to their regular clients but that (2) these improvements should be temporarily suspended after sequences of purchases (sales) followed by price increases (decreases). %G English %L hal-00598169 %U https://hec.hal.science/hal-00598169 %~ SHS %~ HEC %~ CNRS %~ UNIV-CERGY %~ LARA %~ THEMA-UMR8184 %~ CY-TECH-SM