Entry-deterring agency

Simon Loertscher and Andras Niedermayer

Games and Economic Behavior, 2020, vol. 119, issue C, 172-188

Abstract: We provide a model in which an intermediary can choose between wholesale or agency. The possibility that buyers and sellers transact directly limits his market power and, thus, creates incentives for him to deter the emergence of bilateral exchanges. In equilibrium, the intermediary chooses agency and thereby pre-empts the emergence of a competing bilateral exchange if the matching technology of the competing exchange is sufficiently efficient. For symmetric Pareto distributions, whenever agency is chosen in equilibrium, consumer and social surplus decrease while listing and transaction prices tend to increase. The predictions of our model are broadly consistent with empirical evidence.

Keywords: Entry deterrence; Brokerage; Endogenous market structure; Platforms; Competing exchanges (search for similar items in EconPapers)
JEL-codes: C72 D41 D43 L13 (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:gamebe:v:119:y:2020:i:c:p:172-188

DOI: 10.1016/j.geb.2019.09.012

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