Trade through endogenous intermediaries

Weerachart Kilenthong and Cheng-Zhong Qin

MPRA Paper from University Library of Munich, Germany

Abstract: We apply an intermediation game of Townsend (1983) to analyze trade in an exchange economy through endogenous intermediaries. In this game, each trader has the opportunity to become an intermediary by oering to buy or sell unlimited quantities of the commodities at a certain price vector and for a certain group of customers subject to feasibility constraint. An intermediary will not be active unless some of its customers subsequently choose to trade with it. We introduce an "intermediation core" and show that the subgame-perfect equilibrium allocations of the intermediation game are contained in the intermediation core, similar to the inclusion of competitive equilibrium allocations in the core usually studied. We also identify, in terms of the supporting intermediary structures, intermediation core allocations which are also subgame-perfect equilibrium allocations of the intermediation game. These results provide both a characterization and welfare properties of subgame-perfect equilibrium allocations of the intermediation game.

Keywords: intermediation; core; subgame-perfect equilibrium (search for similar items in EconPapers)
JEL-codes: C71 C72 D50 (search for similar items in EconPapers)
Date: 2010-04-13
New Economics Papers: this item is included in nep-gth
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Related works:
Journal Article: Trade through endogenous intermediaries (2014)
Working Paper: Trade through endogenous intermediaries (2014)
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:22046

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