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Middlemen: the visible market makers

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  • Watanabe Watanabe, Makoto

Abstract

This paper presents a search-theoretic model where middlemen can emerge endogenously to intermediate between ex ante homogeneous buyers and sellers in the presence of coordination frictions. Middlemen set price to compete in the market, and hold an inventory to provide a high matching service. I show that middlemen's inventories can mitigate trade imbalances and interact with price competition, generating an interesting tradeoff for the equilibrium price determination. The competitive limit emerges when middlemen guarantee excess demand will never occur. Conditions are characterized under which middlemen carry out the short-side principle for the market price to be Walrasian.

Suggested Citation

  • Watanabe Watanabe, Makoto, 2006. "Middlemen: the visible market makers," UC3M Working papers. Economics we061002, Universidad Carlos III de Madrid. Departamento de Economía.
  • Handle: RePEc:cte:werepe:we061002
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    Cited by:

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    More about this item

    JEL classification:

    • D4 - Microeconomics - - Market Structure, Pricing, and Design
    • D5 - Microeconomics - - General Equilibrium and Disequilibrium
    • D6 - Microeconomics - - Welfare Economics
    • D8 - Microeconomics - - Information, Knowledge, and Uncertainty
    • G2 - Financial Economics - - Financial Institutions and Services
    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance

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