  Traders constantly consider the price impact associated with changing their
positions. This paper seeks to understand how price impact emerges from the
quoting strategies of market makers. To this end, market making is modeled as a
dynamic auction using the mathematical framework of Stochastic Differential
Games. In Nash Equilibrium, the market makers' quoting strategies generate a
price impact function that is of the same form as the celebrated Almgren-Chriss
model. The key insight is that price impact is the mechanism through which
market makers earn profits while matching their books. As such, price impact is
an essential feature of markets where flow is intermediated by market makers.
