How Does a Market maker’S’inventory Skew’ Affect Their Willingness to Quote a Tighter Bid or a Tighter Offer?

Inventory skew refers to a market maker having a net long or net short position in an asset. If they are net long, they will skew their quotes by lowering the bid price and/or raising the ask price relative to the mid-price.

This encourages buyers (to sell their long inventory) and discourages more sellers (to avoid getting longer), thereby pushing the inventory back toward a neutral position.