On Competitive Nonlinear Pricing

Andrea Attar, Thomas Mariotti, and François Salanié


We study a discriminatory limit-order book in which market makers compete in nonlinear tariffs to serve a privately informed insider. Our model allows for general nonparametric specifications of preferences and arbitrary discrete distributions for the insider's private information. Adverse selection severely restricts equilibrium outcomes: in any pure-strategy equilibrium with convex tariffs, pricing must be linear and at most one type can trade, leading to an extreme form of market breakdown. As a result, such equilibria only exist under exceptional circumstances that we fully characterize. These results are strikingly different from those of existing analyses that postulate a continuum of types. The two approaches can be reconciled when we consider "- equilibria of games with a large number of market makers or a large number of types.


Adverse Selection; Competing Mechanisms; Limit-Order Book;

JEL codes

  • D43: Oligopoly and Other Forms of Market Imperfection
  • D82: Asymmetric and Private Information • Mechanism Design
  • D86: Economics of Contract: Theory



Andrea Attar, Thomas Mariotti, and François Salanié, On Competitive Nonlinear Pricing, Theoretical Economics, vol. 14, n. 1, January 2019, pp. 297–343.

Published in

Theoretical Economics, vol. 14, n. 1, January 2019, pp. 297–343