Nasdaq market structure and spread patterns

Eugene Kandel*, Leslie M. Marx

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

52 Scopus citations


Because of its institutional features, the Nasdaq market does not fit the standard competitive model. We construct a model that reflects the distinguishing characteristics of the Nasdaq market. This model implies that in dealer markets with a minimum price increment, competition among market-makers does not necessarily drive spreads down to the level of marginal cost. Using this result, we provide an explanation for the odd-eighth avoidance documented in Christie and Schultz (1994). We show that market-makers can use odd-tick avoidance as a coordination device to increase spreads. Evidence from Nasdaq supports our hypotheses.

Original languageAmerican English
Pages (from-to)61-89
Number of pages29
JournalJournal of Financial Economics
Issue number1
StatePublished - Jul 1997
Externally publishedYes


  • Bid-ask spread
  • Market makers
  • Nasdaq
  • Odd-eighth avoidance


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