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Middlemen: The Visible Market Makers

  • Makoto Watanabe

    ()

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.

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Paper provided by Universidad Carlos III, Departamento de Economía in its series Economics Working Papers with number we061002.

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Date of creation: Jan 2006
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Handle: RePEc:cte:werepe:we061002
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  1. Albrecht, James W. & Gautier, Pieter A. & Vroman, Susan B., 2003. "Matching with multiple applications," Economics Letters, Elsevier, vol. 78(1), pages 67-70, January.
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  4. Burstein, Ariel Tomas & Neves, Joao C & Rebelo, Sérgio, 2001. "Distribution Costs and Real Exchange Rate Dynamics During Exchange-Rate-Based Stabilization," CEPR Discussion Papers 2944, C.E.P.R. Discussion Papers.
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  11. Adrian Masters, 2007. "Middlemen In Search Equilibrium," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 48(1), pages 343-362, 02.
  12. Robert Shimer, 2005. "The Assignment of Workers to Jobs in an Economy with Coordination Frictions," Journal of Political Economy, University of Chicago Press, vol. 113(5), pages 996-1025, October.
  13. Dale T. Mortensen & Randall Wright, 2002. "Competitive Pricing and Efficiency in Search Equilibrium," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 43(1), pages 1-20, February.
  14. Shouyong Shi, 1998. "Product Market and the Size-Wage Differential," Working Papers 972, Queen's University, Department of Economics.
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  16. Acemoglu, D. & Shimer, R., 1997. "Efficient Unemployment Insurance," Working papers 97-9, Massachusetts Institute of Technology (MIT), Department of Economics.
  17. Li, Yiting, 1998. "Middlemen and private information," Journal of Monetary Economics, Elsevier, vol. 42(1), pages 131-159, June.
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  20. Chevalier, Judith A, 1995. " Do LBO Supermarkets Charge More? An Empirical Analysis of the Effects of LBOs on Supermarket Pricing," Journal of Finance, American Finance Association, vol. 50(4), pages 1095-1112, September.
  21. Daron Acemoglu & Robert Shimer, 1998. "Holdups and Efficiency with Search Frictions," Working papers 98-14, Massachusetts Institute of Technology (MIT), Department of Economics.
  22. Gianni De Fraja & Jozsef Sakovics, 2001. "Walras Retrouve: Decentralized Trading Mechanisms and the Competitive Price," Journal of Political Economy, University of Chicago Press, vol. 109(4), pages 842-863, August.
  23. Ricardo Lagos & Randall Wright, 2004. "A unified framework for monetary theory and policy analysis," Staff Report 346, Federal Reserve Bank of Minneapolis.
  24. Montgomery, James D, 1991. "Equilibrium Wage Dispersion and Interindustry Wage Differentials," The Quarterly Journal of Economics, MIT Press, vol. 106(1), pages 163-79, February.
  25. Kenneth Burdett & Shouyong Shi & Randall Wright, 2001. "Pricing and Matching with Frictions," Journal of Political Economy, University of Chicago Press, vol. 109(5), pages 1060-1085, October.
  26. Peters, Michael, 1991. "Ex Ante Price Offers in Matching Games Non-steady States," Econometrica, Econometric Society, vol. 59(5), pages 1425-54, September.
  27. Eric Smith, 2004. "Intermediated Search," Economica, London School of Economics and Political Science, vol. 71(284), pages 619-636, November.
  28. Dean Corbae & Ted Temzelides & Randall Wright, 2003. "Directed Matching and Monetary Exchange," Econometrica, Econometric Society, vol. 71(3), pages 731-756, 05.
  29. Gehrig, Thomas, 1993. "Intermediation in Search Markets," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 2(1), pages 97-120, Spring.
  30. Butters, Gerard R, 1977. "Equilibrium Distributions of Sales and Advertising Prices," Review of Economic Studies, Wiley Blackwell, vol. 44(3), pages 465-91, October.
  31. Hosios, Arthur J, 1990. "On the Efficiency of Matching and Related Models of Search and Unemployment," Review of Economic Studies, Wiley Blackwell, vol. 57(2), pages 279-98, April.
  32. Coles, Melvyn G. & Eeckhout, Jan, 2003. "Indeterminacy and directed search," Journal of Economic Theory, Elsevier, vol. 111(2), pages 265-276, August.
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