  In this paper, I introduce a profit-maximizing centralized marketplace into a
decentralized market with search frictions. Agents choose between the
centralized marketplace and the decentralized bilateral trade. I characterize
the optimal marketplace in this market choice game using a mechanism design
approach. In the unique equilibrium, the centralized marketplace and the
decentralized trade coexist. The profit of the marketplace decreases as the
search frictions in the decentralized market are reduced. However, it is always
higher than the half of the profit when the frictions are prohibitively high
for decentralized trade. I also show that the ratio of the reduction in the
profit depends only on the degree of search frictions and not on the
distribution of valuations. The thickness of the centralized marketplace does
not depend on the search frictions. I derive conditions under which, this
equilibrium results in higher welfare than either institution on its own.
