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Trade through endogenous intermediaries

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  • Kilenthong, Weerachart T.
  • Qin, Cheng-Zhong

Abstract

We propose an intermediation core for an economy that explicitly specifies how traders organize themselves into trade cooperatives (intermediaries) and how trade between them gets carried out. The intermediation core allocations are closely related to the equilibrium allocations of a non-cooperative intermediation game in Townsend (1983). We show that the intermediation core contains all subgame perfect equilibrium allocations of the intermediation game, similar to the inclusion of competitive equilibrium allocations in the core usually studied. We identify intermediation core allocations that are also subgame perfect equilibrium allocations of the intermediation game in terms of the supporting intermediary structures. These results help to characterize subgame perfect equilibrium allocations of the intermediation game and to analyze their welfare and stability properties.

Suggested Citation

  • Kilenthong, Weerachart T. & Qin, Cheng-Zhong, 2014. "Trade through endogenous intermediaries," Journal of Mathematical Economics, Elsevier, vol. 50(C), pages 262-268.
    • Handle: RePEc:eee:mateco:v:50:y:2014:i:c:p:262-268
    DOI: 10.1016/j.jmateco.2013.12.008
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    Cited by:

    1. Weerachart T. Kilenthong & Robert M. Townsend, 2021. "A Market-Based Solution for Fire Sales and Other Pecuniary Externalities," Journal of Political Economy, University of Chicago Press, vol. 129(4), pages 981-1010.
    2. Weerachart T. Kilenthong & Robert M. Townsend, 2021. "A Market-Based Solution for Fire Sales and Other Pecuniary Externalities," Journal of Political Economy, University of Chicago Press, vol. 129(4), pages 981-1010.

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    More about this item

    Keywords

    Endogenous intermediary; Intermediation game; Intermediation core; Subgame perfect equilibrium; Price formation;
    All these keywords.

    JEL classification:

    • D50 - Microeconomics - - General Equilibrium and Disequilibrium - - - General
    • C71 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Cooperative Games
    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games

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