Trade with and without Intermediaries: Some Alternative Model Formulations
Interregional and international trade models have conventionally used an abstract exchange mechanism to generate the linkages between exogenous supply and demand functions defined in each region (country). This approach is compared with a procedure where spatial non-separable supply or demand functions for the agents who pay the transport costs are derived endogenously and the exchange mechanism eliminated. In both cases, trade is generated through direct bilateral contracts between buyers and sellers. However, differentiated finished goods are often traded with the active intervention of intermediaries, acting as both buyers and sellers. In such cases, an actual exchange mechanism is introduced to represent the price responsive behaviour of the exchange agents. The structures of the alternative models are compared with regard to their equilibrium properties and potential policy applications, for both mill pricing and uniform delivered pricing.
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Volume (Year): 28 (1994)
Issue (Month): 4 (December)
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