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Middlemen: A Directed Search Equilibrium Approach

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  • Watanabe Makoto

    (Department of Economics, School of Business and Economics, VU Amsterdam, De Boelelaan 1105, NL-1081 HV, Amsterdam, The Netherlands)

Abstract

This paper studies an intermediated market operated by middlemen with high inventory holdings. I present a directed search model in which middlemen are less likely to experience a stockout because they have the advantage of inventory capacity, relative to other sellers. The model explains why the empirical relationship between middlemen’s premium and their inventory capacity can be positive in some markets (e. g., rental video shops, used-car dealers) and negative in other markets (e. g., supermarkets, theater ticket offices). I also examine the implication of the configuration of middlemen’s market in terms of the size and the number of middlemen for the equilibrium premium with and without free entry.

Suggested Citation

  • Watanabe Makoto, 2020. "Middlemen: A Directed Search Equilibrium Approach," The B.E. Journal of Macroeconomics, De Gruyter, vol. 20(2), pages 1-37, June.
    • Handle: RePEc:bpj:bejmac:v:20:y:2020:i:2:p:37:n:6
    DOI: 10.1515/bejm-2019-0258
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    Cited by:

    1. Benjamin Lester & Guillaume Rocheteau & Pierre‐Olivier Weill, 2015. "Competing for Order Flow in OTC Markets," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 47(S2), pages 77-126, June.
    2. Athanasios Geromichalos, 2012. "Directed Search and the Bertrand Paradox," Working Papers 1221, University of California, Davis, Department of Economics.
    3. Holzner, Christian Ludwig & Watanabe, Makoto, 2015. "Labor Market Equilibrium with Public Employment Agency," VfS Annual Conference 2015 (Muenster): Economic Development - Theory and Policy 113097, Verein für Socialpolitik / German Economic Association.
    4. Fei Li & Charles Murry & Can Tian & Yiyi Zhou, 2024. "Inventory Management In Decentralized Markets," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 65(1), pages 431-470, February.
    5. Pieter Gautier & Bo Hu & Makoto Watanabe, 2023. "Marketmaking Middlemen," RAND Journal of Economics, RAND Corporation, vol. 54(1), pages 83-103, March.
    6. Derek Stacey, 2019. "Posted Prices, Search and Bargaining," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 33, pages 85-104, July.
    7. Randall Wright & Yuet‐Yee Wong, 2014. "Buyers, Sellers, And Middlemen: Variations On Search‐Theoretic Themes," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 55(2), pages 375-397, May.
    8. Yuet-Yee Wong & Randall Wright, 2011. "Buyers, sellers and middlemen: variations in search theory," Working Papers 691, Federal Reserve Bank of Minneapolis.

    More about this item

    Keywords

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    JEL classification:

    • D4 - Microeconomics - - Market Structure, Pricing, and Design
    • F1 - International Economics - - Trade
    • G2 - Financial Economics - - Financial Institutions and Services
    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance
    • L8 - Industrial Organization - - Industry Studies: Services
    • R1 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics

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