Limit-Order Markets and Uniform-Price Auctions: An Irrelevance Proposition, working paper

This paper analyzes three market structures: a pure limit-order book, a specialist market, and a uniform-price auction (which can be interpreted as a dealership market or as a specialist market with competition from the crowd). We allow for different order sizes and endogenize the informed order flow, assuming risk-neutral competitive liquidity providers. We show that the limit-order book market is equivalent to a uniform-price auction. We show that the specialist (without competition from the crowd) increases costs for liquidity traders, decreases the profit of an informed trader, worsens transaction prices, and worsens the price-efficiency of the market