Equilibrium in a market with intermediation is Walrasian

John Wooders

Review of Economic Design, 1997, vol. 3, issue 1, 75-89

Abstract: We show that a profit maximizing monopolistic intermediary may behave approximately like a Walrasian auctioneer by setting bid and ask prices nearly equal to Walrasian equilibrium prices. In our model agents choose to trade either through the intermediary or privately. Buyers (sellers) trading through the intermediary potentially trade immediately at the ask (bid) price, but sacrifice the spread as gains. A buyer or seller who trades privately shares all the gains to trade with this trading partner, but risks costly delay in finding a partner. We show that as the cost of delay vanishes, the equilibrium bid and ask prices converge to the Walrasian equilibrium prices.

Keywords: Intermediation; bid; ask; matching; Walrasian equilibrium (search for similar items in EconPapers)
JEL-codes: C72 C78 L12 (search for similar items in EconPapers)
Date: 1997-11-27
Note: Received: 2 February 1996 / Accepted: 28 March 1997
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Citations: View citations in EconPapers (5)

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Working Paper: Equilibrium in a market with intermediation is Walrasian (1994)
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