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Market Microstructure and Intermediation

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  • Daniel F. Spulber

Abstract

This paper emphasizes the important role played by intermediaries in the economy, including wholesalers, retailers, and financial firms. The paper defines an intermediary as an economic agent that purchases from suppliers for resale to buyers or that helps buyers and sellers meet and transact. Intermediaries coordinate transactions and provide the institutions of exchange that constitute market microstructure. Intermediaries set prices, manage inventories, coordinate exchange, and provide information through guarantees and delegated monitoring. These crucial activities help to explain how markets attain equilibrium prices and quantities. The paper suggests that the study of intermediation should be incorporated into mainstream economic analysis.

Suggested Citation

  • Daniel F. Spulber, 1996. "Market Microstructure and Intermediation," Journal of Economic Perspectives, American Economic Association, vol. 10(3), pages 135-152, Summer.
  • Handle: RePEc:aea:jecper:v:10:y:1996:i:3:p:135-52
    Note: DOI: 10.1257/jep.10.3.135
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    File URL: http://www.aeaweb.org/articles.php?doi=10.1257/jep.10.3.135
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    References listed on IDEAS

    as
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    More about this item

    JEL classification:

    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation

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