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Intermediation in markets for goods and markets for assets

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  • Nosal, Ed
  • Wong, Yuet-Yee
  • Wright, Randall

Abstract

We analyze agents' decisions to act as producers or intermediaries using equilibrium search theory. Extending previous analyses in various ways, we ask when intermediation emerges and study its efficiency. In one version of the framework, meant to resemble retail, middlemen hold goods, which entails (storage) costs; that model always displays uniqueness and simple transition dynamics. In another version, middlemen hold assets, which entails negative costs, i.e., positive returns; that model can have multiple equilibria and complicated belief-based dynamics. These results are consistent with the venerable view that intermediation in financial markets is more prone to instability than in goods markets.

Suggested Citation

  • Nosal, Ed & Wong, Yuet-Yee & Wright, Randall, 2019. "Intermediation in markets for goods and markets for assets," Journal of Economic Theory, Elsevier, vol. 183(C), pages 876-906.
  • Handle: RePEc:eee:jetheo:v:183:y:2019:i:c:p:876-906
    DOI: 10.1016/j.jet.2019.07.001
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    References listed on IDEAS

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    Cited by:

    1. Han, Han & Julien, Benoît & Petursdottir, Asgerdur & Wang, Liang, 2019. "Asset liquidity and indivisibility," European Economic Review, Elsevier, vol. 119(C), pages 236-250.
    2. Chao Gu & Cyril Monnet & Ed Nosal & Randall Wright, 2019. "On the Instability of Banking and Financial Intermediation," Working Papers 1901, Department of Economics, University of Missouri.
    3. Chao Gu & Cyril Monnet & Ed Nosal & Randall Wright, 2019. "On the Instability of Banking and Other Financial Intermediation," Working Papers 19.04, Swiss National Bank, Study Center Gerzensee.

    More about this item

    Keywords

    Middlemen; Intermediation; Search; Bargaining; Multiplicity;

    JEL classification:

    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness

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