Equilibrium in a market with intermediation is Walrasian

John Wooders

UC3M Working papers. Economics from Universidad Carlos III de Madrid. Departamento de Economía

Abstract: We show that a profit maximizing monopolistic intermediary may behave approximately like a Walrasian auctioneer setting bid and ask prices nearly equal to Walrasian equilibrium prices. In the model agents trade either through the intermediary or privately. Buyers (sellers) choosing to trade through the intermediary potentially trade immediately at the ask (bid) price, but sacrifice the spread as potential gains. Agents trading privately capture all of the gains to trade, but risk costly delay in finding a partner. We show that when the cost of delay is small, the intermediary sets bid and ask prices nearly equal to Walrasian equilibrium prices. As the cost of delay vanishes, the equilibrium bid and ask prices converge to the Walrasian equilibrium prices. If the possibility of trading through the intermediary is removed, and therefore all trade takes place in the private trading market, then prices are not close to Walrasian equilibrium prices even as the cost of delay vanishes.

Keywords: Intermediation; Walrasian; equilibrium; Matching; Bargaining (search for similar items in EconPapers)
Date: 1994-12
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Journal Article: Equilibrium in a market with intermediation is Walrasian (1997)
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Persistent link: https://EconPapers.repec.org/RePEc:cte:werepe:2981

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