More on Middlemen: Equilibrium Entry and Efficiency in Intermediated Markets

Ed Nosal, Yuet‐yee Wong and Randall Wright

Journal of Money, Credit and Banking, 2015, vol. 47, issue S2, 7-37

Abstract: This paper generalizes Rubinstein and Wolinsky's (1987) model of middlemen (intermediation) by incorporating production and search costs, plus more general matching and bargaining. This allows us to study many new issues, including entry, efficiency, and dynamics. In the benchmark model, equilibrium exists uniquely and involves production and intermediation for some parameters but not others. Sometimes intermediation is essential: the market operates if and only if middlemen are active. If bargaining powers are set correctly equilibrium is efficient; if not there can be too much or too little economic activity. This is novel, compared to the original Rubinstein–Wolinsky model, where equilibrium is always efficient.

Date: 2015
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Citations: View citations in EconPapers (19)

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https://doi.org/10.1111/jmcb.12213

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Working Paper: More on Middlemen: Equilibrium Entry and Efficiency in Intermediated Markets (2014)
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Persistent link: https://EconPapers.repec.org/RePEc:wly:jmoncb:v:47:y:2015:i:s2:p:7-37

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