Trading Networks and Equilibrium Intermediation

Maciej Kotowski and Christian Leister

Working Paper Series from Harvard University, John F. Kennedy School of Government

Abstract: We study an economy where intermediaries facilitate exchange between a supplier and consumers. The set of feasible transactions is characterized by a network. Free entry helps form the network. There is under-entry of intermediaries in equilibrium due to complementarities among agents in distant parts of the economy. When intermediaries are speculators, equilibrium networks exhibit an asymmetric structure that amplifies certain traders’ importance. An extension of the model allows for disintermediation. Generally, free-entry and competition may fail to purge redundant intermediaries from the market. However, avoidance of a reseller’s curse deters superfluous speculators.

JEL-codes: D44 D85 L14 (search for similar items in EconPapers)
Date: 2018-01
New Economics Papers: this item is included in nep-com, nep-mic and nep-net
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Citations: View citations in EconPapers (15)

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Persistent link: https://EconPapers.repec.org/RePEc:ecl:harjfk:rwp18-001

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