In the paper Bastien Baldacci, Dylan Possamaï, Mathieu Rosenbaum, Optimal make take fees in a multi market maker environment(https://arxiv.org/pdf/1907.11053.pdf), the total spread is increased to about 9 ticks when there are 5 market makers as shown in Fig 13. Though the paper gives a mathematical derivation, is there any intuitive interpretation for this result? Also based on my own observation, most crypto exchanges provide a make take fee policy with multiple market makers, but at most of the time the best bid ask spread is equal to 1 tick.

  • $\begingroup$ One intuitive reason may be that with more market makers, risk and risk-appetite is both more elevated and increases the odds of being better distributed across the market. This leads to reduced demand in charging for a significant risk premium. In other words, diversification leads to improved liquidity. $\endgroup$
    – user35980
    Nov 3, 2023 at 12:18
  • $\begingroup$ Mms are usually compensated through some liquidity provision scheme, in addition to maker taker fees or rebates. When there are 5 MMs you typically are less inclined to be TOB as you don't need to be. When you are the designated MM there are usually stipulations requiring you to be within x% of TOB to earn $y $\endgroup$
    – user68819
    Nov 3, 2023 at 21:02
  • $\begingroup$ Also in a book of non dumb (retail) flow, I'd usually want to widen my prices..just due to adverse selection etc. I.e. someone will only take from me in big size if they are informed. $\endgroup$
    – user68819
    Nov 3, 2023 at 21:03


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