We develop a model of price formation in a dealership market where monitoring of the information flow requires costly … effort. The result is imperfect monitoring, which creates profit opportunities for speculators who pick off "stale quotes …". Externalities associated with monitoring give rise to multiple equilibria in which dealers earn strictly positive expected profits …

We develop a model of price formation in a dealership market where monitoring of the information flow requires costly … effort. The result is imperfect monitoring, which creates profit opportunities for speculators, who do not act as dealers but … monitoring can help to sustain non-competitive spreads. We show that protecting dealers against the execution of stale quotes can …

, generating high frequency make/take liquidity cycles. Monitoring decisions by market-makers and market-takers are self …