As equity trading becomes predominantly electronic, is there still value to a traditional, intermediated dealer system? We address this question by comparing the impact of the organization of trading on volume, liquidity, and price efficiency in a quote-driven dealer market and in an...

We develop a financial market trading model in the tradition of Glosten and Milgrom (1985) that allows us to incorporate non-trivial volume. We observe that in this model price volatility is positively related to the trading volume and to the absolute value of the net order flow, i.e. the order...