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

  • Yuet-Yee Wong
  • Randall Wright

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.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 17511.

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Date of creation: Oct 2011
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Handle: RePEc:nbr:nberwo:17511
Note: EFG IO
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  1. Gabriele Camera, 2001. "Search, Dealers, and the Terms of Trade," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 4(3), pages 680-694, July.
  2. Douglas Gale, 2010. "Limit theorems for markets with sequential bargaining," Levine's Working Paper Archive 621, David K. Levine.
  3. Nosal, Ed & Rocheteau, Guillaume, 2011. "Money, Payments, and Liquidity," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262016281, June.
  4. Watanabe, Makoto, 2010. "A model of merchants," Journal of Economic Theory, Elsevier, vol. 145(5), pages 1865-1889, September.
  5. Geoffroy de Clippel & Kfir Eliaz, 2011. "On the Strategic Disclosure of Feasible Options in Bargaining," Working Papers 2011-5, Brown University, Department of Economics.
  6. Rocheteau, Guillaume & Wright, Randall, 2013. "Liquidity and asset-market dynamics," Journal of Monetary Economics, Elsevier, vol. 60(2), pages 275-294.
  7. Yavas, Abdullah, 1992. "Marketmakers versus matchmakers," Journal of Financial Intermediation, Elsevier, vol. 2(1), pages 33-58, March.
  8. Jianjun Miao, 2005. "A Search Model of Centralzied and Decentralized Trade," Boston University - Department of Economics - The Institute for Economic Development Working Papers Series dp-144, Boston University - Department of Economics.
  9. Yavas, Abdullah, 1994. "Middlemen in Bilateral Search Markets," Journal of Labor Economics, University of Chicago Press, vol. 12(3), pages 406-29, July.
  10. Adrian Masters, 2004. "Middlemen in Search Equilibrium," Discussion Papers 04-11, University at Albany, SUNY, Department of Economics.
  11. 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.
  12. 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.
  13. Masters, Adrian, 2008. "Unpleasant middlemen," Journal of Economic Behavior & Organization, Elsevier, vol. 68(1), pages 73-86, October.
  14. Alok Johri & Lohn Leach, 2000. "Middlemen and the Allocation of Heterogeneous Goods," Department of Economics Working Papers 2000-06, McMaster University.
  15. Gautam Bose & Abhijit Sengupta, 2010. "A Dynamic Model of Search and Intermediation," Discussion Papers 2010-04, School of Economics, The University of New South Wales.
  16. Thomas Gehrig, 1993. "Intermediation in Search Markets," Discussion Papers 1058, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  17. 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.
  18. Pierre-Olivier Weill, 2004. "Leaning against the wind," 2004 Meeting Papers 382, Society for Economic Dynamics.
  19. David K. Levine, 2010. "Production Chains," NBER Working Papers 16571, National Bureau of Economic Research, Inc.
  20. Abdullah Yavaş, 1996. "Search and Trading in Intermediated Markets," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 5(2), pages 195-216, 06.
  21. repec:dgr:uvatin:20120138 is not listed on IDEAS
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