Market segmentation as a screening mechanism

In a model of pairwise trade where traders of different sizes arrive sequentially on the market, the existence of small traders imposes a negative externality on the trading options available to large traders. When the relative arrival rate of large traders is high, there is an equilibrium in which large traders prefer to trade in a separate market. Separation is implemented by imposing a price for entry into the market segment, with the two types differing in their willingness to pay the entry price. For some parameter values there is also an equilibrium in which traders are not physically segregated, but large traders voluntarily decline small trades