Intermediation in Search Markets
In markets, in which exchange requires costly search for trading partners, intermediaries can help to reduce the trading frictions. This intuition is modelled in a framework with heterogeneous agents, who have the chocie between intermediated exchange and search accompanied by some bargaining procedure. The equilibria of such a game are characterized. In the case of a monopolistic intermediary the tradeoff between the bid-ask spread and the costs of delay during private search determine the intermediary's clientele. In equilibrium the monopolist charges a positive spread. Traders with large gains from trade prefer to deal with him, whereas traders with relatively low gains from trade engage in search. In case of competition among intermediaries the classical Bertrand result obtains and bid and ask prices converge to the (unique) Walrasian equilibrium price. Thus in the confines of the model the Walrasian auctioneer of the market under consideration can be replaced by competing intermediaries. In addition a multiplicity of subgame perfect Nash edquilibria emphasizes the coordination problemms inherent in models of intermediation.
|Date of creation:||Aug 1993|
|Contact details of provider:|| Postal: Center for Mathematical Studies in Economics and Management Science, Northwestern University, 580 Jacobs Center, 2001 Sheridan Road, Evanston, IL 60208-2014|
Web page: http://www.kellogg.northwestern.edu/research/math/
More information through EDIRC
|Order Information:|| Email: |
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Yavas, Abdullah, 1992. "Marketmakers versus matchmakers," Journal of Financial Intermediation, Elsevier, vol. 2(1), pages 33-58, March.
- Glosten, Lawrence R. & Milgrom, Paul R., 1985.
"Bid, ask and transaction prices in a specialist market with heterogeneously informed traders,"
Journal of Financial Economics,
Elsevier, vol. 14(1), pages 71-100, March.
- Lawrence R. Glosten & Paul R. Milgrom, 1983. "Bid, Ask and Transaction Prices in a Specialist Market with Heterogeneously Informed Traders," Discussion Papers 570, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
- Kyle, Albert S, 1985. "Continuous Auctions and Insider Trading," Econometrica, Econometric Society, vol. 53(6), pages 1315-1335, November.
- Stahl, Dale O, II, 1988. "Bertrand Competition for Inputs and Walrasian Outcomes," American Economic Review, American Economic Association, vol. 78(1), pages 189-201, March.
- David Kreps & Robert Wilson, 1998.
Levine's Working Paper Archive
237, David K. Levine.
- Douglas W. Diamond, 1984. "Financial Intermediation and Delegated Monitoring," Review of Economic Studies, Oxford University Press, vol. 51(3), pages 393-414.
When requesting a correction, please mention this item's handle: RePEc:nwu:cmsems:1058. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Fran Walker)
If references are entirely missing, you can add them using this form.