Middle Men: The Visible Market†Makers

Makoto Watanabe

The Japanese Economic Review, 2018, vol. 69, issue 2, 156-170

Abstract: This paper presents a framework in which middlemen emerge to intermediate between ex†ante homogeneous buyers and sellers in the presence of search frictions. Middlemen announce prices, and hold an inventory to provide more sure services. Middlemen can mitigate trade imbalances with price competition. Using this framework I illustrate how the frictionless limit can emerge and how middlemen can implement the short†side principle for the market price to be Walrasian. The recent progress in the literature on intermediation will also be discussed.

Date: 2018
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