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Buyers, Sellers and Middlemen: Variations on Search-Theoretic Themes

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  • Yuet-Yee Wong
  • Randall Wright

Abstract

We study bilateral exchange, both direct trade and indirect trade that happens through chains of intermediaries or middlemen. We develop a model of this activity and present applications. This illustrates how, and how many, intermediaries get involved, and how the terms of trade are determined. We show how bargaining with one intermediary depends on upcoming negotiations with downstream intermediaries, leading to holdup problems. We discuss the roles of buyers and sellers in bilateral exchanges, and how to interpret prices. We develop a particular bargaining solution and relate it to other solutions. In addition to contrasting our framework with other models of middlemen, we discuss the connection to different branches of search theory. We also illustrate how bubbles can emerge in intermediation.

Suggested Citation

  • Yuet-Yee Wong & Randall Wright, 2011. "Buyers, Sellers and Middlemen: Variations on Search-Theoretic Themes," NBER Working Papers 17511, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:17511
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    References listed on IDEAS

    as
    1. de Clippel, Geoffroy & Eliaz, Kfir, 2011. "On the Strategic Disclosure of Feasible Options in Bargaining," CEPR Discussion Papers 8262, C.E.P.R. Discussion Papers.
    2. Shell, Karl, 1971. "Notes on the Economics of Infinity," Journal of Political Economy, University of Chicago Press, vol. 79(5), pages 1002-1011, Sept.-Oct.
    3. Gehrig, Thomas, 1993. "Intermediation in Search Markets," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 2(1), pages 97-120, Spring.
    4. Yavas, Abdullah, 1994. "Middlemen in Bilateral Search Markets," Journal of Labor Economics, University of Chicago Press, vol. 12(3), pages 406-429, July.
    5. Lagos, Ricardo & Rocheteau, Guillaume & Weill, Pierre-Olivier, 2011. "Crises and liquidity in over-the-counter markets," Journal of Economic Theory, Elsevier, vol. 146(6), pages 2169-2205.
    6. Alok Johri & John Leach, 2002. "Middlemen and the Allocation of Heterogeneous Goods," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 43(2), pages 347-362, May.
    7. David Levine, 2012. "Production Chains," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 15(3), pages 271-282, July.
    8. Pierre-Olivier Weill, 2007. "Leaning Against the Wind," Review of Economic Studies, Oxford University Press, vol. 74(4), pages 1329-1354.
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    10. Makoto Watanabe, 2012. "Middlemen: A Directed Search Equilibrium Approach," Tinbergen Institute Discussion Papers 12-138/V, Tinbergen Institute.
    11. Jianjun Miao, 2006. "A search model of centralized and decentralized trade," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 9(1), pages 68-92, January.
    12. Masters, Adrian, 2008. "Unpleasant middlemen," Journal of Economic Behavior & Organization, Elsevier, vol. 68(1), pages 73-86, October.
    13. Gale, Douglas, 1987. "Limit theorems for markets with sequential bargaining," Journal of Economic Theory, Elsevier, vol. 43(1), pages 20-54, October.
    14. 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, February.
    15. Benjamin Lester & Andrew Postlewaite & Randall Wright, 2008. "Information, Liquidity and Asset Prices," PIER Working Paper Archive 08-039, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania.
    16. Watanabe, Makoto, 2010. "A model of merchants," Journal of Economic Theory, Elsevier, vol. 145(5), pages 1865-1889, September.
    17. Yavas, Abdullah, 1992. "Marketmakers versus matchmakers," Journal of Financial Intermediation, Elsevier, vol. 2(1), pages 33-58, March.
    18. Abdullah Yavaş, 1996. "Search and Trading in Intermediated Markets," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 5(2), pages 195-216, June.
    19. Patrick Bayer & Christopher Geissler & Kyle Mangum & James W. Roberts, 2011. "Speculators and Middlemen: The Strategy and Performance of Investors in the Housing Market," NBER Working Papers 16784, National Bureau of Economic Research, Inc.
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    Blog mentions

    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. Buyers, Sellers and Middlemen: Variations on Search-Theoretic Themes
      by Christian Zimmermann in NEP-DGE blog on 2011-11-08 03:30:44

    Citations

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    Cited by:

    1. Charles Ka Yui Leung & Chung-Yi Tse, 2012. "Flippers in Housing Market Search," 2012 Meeting Papers 434, Society for Economic Dynamics.
    2. Makoto Watanabe, 2012. "Middlemen: A Directed Search Equilibrium Approach," Tinbergen Institute Discussion Papers 12-138/V, Tinbergen Institute.
    3. Chao He & Randall Wright & Yu Zhu, 2015. "Housing and Liquidity," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 18(3), pages 435-455, July.
    4. Davis, Morris A. & Van Nieuwerburgh, Stijn, 2015. "Housing, Finance, and the Macroeconomy," Handbook of Regional and Urban Economics, Elsevier.

    More about this item

    JEL classification:

    • D2 - Microeconomics - - Production and Organizations
    • D4 - Microeconomics - - Market Structure, Pricing, and Design
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness

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