Advanced Search
MyIDEAS: Login to save this paper or follow this series

Search and Endogenous Intermediation: A Model of the Merchant Trader


Author Info

  • Abhijit Sengupta
  • Gautam Bose


Specialist merchants and traders---agents who mediate the transfer of goods and services between producers and consumers---are central to the economic process, but there are few theoretical models in which the institution of intermediation is an endogenous part of an equilibrium. This paper develops a simple model of the merchant trader in an economy with search frictions. We consider a homogeneous population where each agent, in every period, has a choice between specializing as producers or as merchants, and can switch occupation at any any time. In this economy producers must find trading partners. They may be found in a decentralized search market, but search takes time. Merchants set up trading posts where they offer an immediate trade in return for a commission that each merchant sets every period. Although the location of a merchant's trading post must be discovered through search, producers who are informed of the location of a trading post have the option of returning to deal with the merchant instead of searching anew for trading partners. Formally, we model the interaction among the agents in this economy through time as a stochastic game in which each agent every period chooses an occupation; merchants set their commission rates; and informed producers decide whether to return to their merchants or search for trading partners. We provide a complete characterization of the symmetric Markov perfect equilibria of the game. In particular, we characterize the conditions under which merchants are active in equilibrium and form an ongoing relationship with their informed clients. We also provide conditions under which an equilibrium with no merchants is ``unstable'' against deviations in which a proportion of agents emerge as specialist merchants. Finally, we investigate the welfare properties of equilibria with active merchants

Download Info

To our knowledge, this item is not available for download. To find whether it is available, there are three options:
1. Check below under "Related research" whether another version of this item is available online.
2. Check on the provider's web page whether it is in fact available.
3. Perform a search for a similarly titled item that would be available.

Bibliographic Info

Paper provided by Econometric Society in its series Econometric Society 2004 Australasian Meetings with number 222.

as in new window
Date of creation: 11 Aug 2004
Date of revision:
Handle: RePEc:ecm:ausm04:222

Contact details of provider:
Phone: 1 212 998 3820
Fax: 1 212 995 4487
Web page:
More information through EDIRC

Related research

Keywords: Search; Intermediation; Markov perfect equilibrium;

Find related papers by JEL classification:


No references listed on IDEAS
You can help add them by filling out this form.



This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.


Access and download statistics


When requesting a correction, please mention this item's handle: RePEc:ecm:ausm04:222. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Christopher F. Baum).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.