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Middlemen: The Visible Market Makers

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  • Makoto Watanabe

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Abstract

This paper presents a search-theoretic model where middlemen can emerge endogenously to intermediate between ex ante homogeneous buyers and sellers in the presence of coordination frictions. Middlemen set price to compete in the market, and hold an inventory to provide a high matching service. I show that middlemen's inventories can mitigate trade imbalances and interact with price competition, generating an interesting tradeoff for the equilibrium price determination. The competitive limit emerges when middlemen guarantee excess demand will never occur. Conditions are characterized under which middlemen carry out the short-side principle for the market price to be Walrasian.

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Bibliographic Info

Paper provided by Universidad Carlos III, Departamento de Economía in its series Economics Working Papers with number we061002.

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Date of creation: Jan 2006
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Handle: RePEc:cte:werepe:we061002

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Cited by:
  1. Makoto Watanabe, 2012. "Middlemen: A Directed Search Equilibrium Approach," Tinbergen Institute Discussion Papers 12-138/V, Tinbergen Institute.

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