Search, Dealers, and the Terms of Trade
AbstractI illustrate a search theoretic environment that allows endogenous determination of number of trade facilitators and markup charged on mediated sales. Developed around Kiyotaki and Wright's (1989) exchange economy, the study relaxes the assumptions of exogenous prices and distribution of agents who specialize in the different consumption-production activities. There is a unique equilibrium where some choose to provide intermediary services to others, buying the lowest storage-cost good at a discount, reselling it at a premium. The resulting markup responds in predictable ways to extent of trading frictions, storage cost, and distribution of specialty production. There is scope for price dispersion in that mediated transactions occur at unequal terms of trade for different agents, even if storage cost and time discounting vanish. Due to a trading externality generated by indirect exchange, absence or choice of mechanisms for endogenous price determination have implications for existence and efficiency of the transaction arrangement.
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Bibliographic InfoPaper provided by Purdue University, Department of Economics in its series Purdue University Economics Working Papers with number 1140.
Length: 38 pages
Date of creation: Mar 2001
Date of revision:
Search ; Intermediate ; Prices;
Find related papers by JEL classification:
- D10 - Microeconomics - - Household Behavior - - - General
- D11 - Microeconomics - - Household Behavior - - - Consumer Economics: Theory
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