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Marketmaking Middlemen

Author

Listed:
  • Pieter A. Gautier
  • Bo Hu
  • Makoto Watanabe

Abstract

This paper develops a model in which market structure is determined endogenously by the choice of intermediation mode. We consider two representative business modes of intermediation that are widely used in real-life markets: one is a middleman mode by which an intermediary holds inventories which he stocks from sellers for the purpose of reselling to buyers; the other is a market-making mode by which an intermediary offers a platform for buyers and sellers to trade with each other. In our model, buyers and sellers can simultaneously search in an outside market and use the intermediation service. We show that a marketmaking middleman, who adopts the mixture of these two intermediation modes, can emerge in a directed search equilibrium.

Suggested Citation

  • Pieter A. Gautier & Bo Hu & Makoto Watanabe, 2016. "Marketmaking Middlemen," CESifo Working Paper Series 6030, CESifo Group Munich.
  • Handle: RePEc:ces:ceswps:_6030
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    References listed on IDEAS

    as
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    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    middlemen; marketmakers; platform; directed search;

    JEL classification:

    • D40 - Microeconomics - - Market Structure, Pricing, and Design - - - General
    • G20 - Financial Economics - - Financial Institutions and Services - - - General
    • L10 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - General
    • L80 - Industrial Organization - - Industry Studies: Services - - - General
    • R10 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - General

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