  We investigate the properties of the pairwise velocity dispersion as a
function of galaxy luminosity in the context of a halo model. We derive the
distribution of velocities of pairs at a given separation taking into account
both one-halo and two-halo contributions. We show that pairwise velocity
distribution in real space is a complicated mixture of host-satellite,
satellite-satellite and two-halo pairs. The peak value is reached at around
1$h^{-1}$Mpc and does not reflect the velocity dispersion of a typical halo
hosting these galaxies, but is instead dominated by the satellite-satellite
pairs in high mass clusters. This is true even for cross-correlations between
bins separated in luminosity. As a consequence the velocity dispersion at a
given separation can decrease with luminosity, even if the underlying typical
halo host mass is increasing, in agreement with recent observations. We compare
our findings to numerical simulations and find a good agreement. Numerical
simulations also suggest a luminosity dependent velocity bias, which depends on
the subhalo mass. We develop models of the auto- and cross-correlation function
of luminosity subsamples of galaxies in the observable $r_\proj - \pi$ space
and calculate the inferred velocity dispersion as a function of wave vector if
dispersion model is fit to the redshift space power spectrum. We find that so
derived pairwise velocity dispersion also exhibits a bump at $k\sim 1 h/{\rm
Mpc}$.
