Intermediation in Search Markets

Thomas Gehrig

No 1058, Discussion Papers from Northwestern University, Center for Mathematical Studies in Economics and Management Science

Abstract: In markets, in which exchange requires costly search for trading partners, intermediaries can help to reduce the trading frictions. This intuition is modelled in a framework with heterogeneous agents, who have the chocie between intermediated exchange and search accompanied by some bargaining procedure. The equilibria of such a game are characterized. In the case of a monopolistic intermediary the tradeoff between the bid-ask spread and the costs of delay during private search determine the intermediary's clientele. In equilibrium the monopolist charges a positive spread. Traders with large gains from trade prefer to deal with him, whereas traders with relatively low gains from trade engage in search. In case of competition among intermediaries the classical Bertrand result obtains and bid and ask prices converge to the (unique) Walrasian equilibrium price. Thus in the confines of the model the Walrasian auctioneer of the market under consideration can be replaced by competing intermediaries. In addition a multiplicity of subgame perfect Nash edquilibria emphasizes the coordination problemms inherent in models of intermediation.

Keywords: intermediation; incomplete information; price competition; transaction costs (search for similar items in EconPapers)
JEL-codes: C78 D83 L12 (search for similar items in EconPapers)
Date: 1993-08
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (142)

Downloads: (external link)
http://www.kellogg.northwestern.edu/research/math/papers/1058.pdf main text (application/pdf)

Related works:
Journal Article: Intermediation in Search Markets (1993)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:nwu:cmsems:1058

Ordering information: This working paper can be ordered from
fwalker@kellogg.northwestern.edu

Access Statistics for this paper

More papers in Discussion Papers from Northwestern University, Center for Mathematical Studies in Economics and Management Science Center for Mathematical Studies in Economics and Management Science, Northwestern University, 580 Jacobs Center, 2001 Sheridan Road, Evanston, IL 60208-2014. Contact information at EDIRC.
Bibliographic data for series maintained by Fran Walker (fwalker@kellogg.northwestern.edu this e-mail address is bad, please contact repec@repec.org).