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Search, Dealers, and the Terms of Trade

  • Camera, G.
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    I illustrate a search theoretic environment that allows endogenous determination of number of trade facilitators and markup charged on mediated sales. Developed around Kiyotaki and Wright's (1989) exchange economy, the study relaxes the assumptions of exogenous prices and distribution of agents who specialize in the different consumption-production activities. There is a unique equilibrium where some choose to provide intermediary services to others, buying the lowest storage-cost good at a discount, reselling it at a premium. The resulting markup responds in predictable ways to extent of trading frictions, storage cost, and distribution of specialty production. There is scope for price dispersion in that mediated transactions occur at unequal terms of trade for different agents, even if storage cost and time discounting vanish. Due to a trading externality generated by indirect exchange, absence or choice of mechanisms for endogenous price determination have implications for existence and efficiency of the transaction arrangement.

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    File URL: http://www.krannert.purdue.edu/programs/phd/Working-paper-series/Year-2000/C.Camera3-2000.pdf
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    Paper provided by Purdue University, Department of Economics in its series Purdue University Economics Working Papers with number 1140.

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    Length: 38 pages
    Date of creation: Mar 2001
    Date of revision:
    Handle: RePEc:pur:prukra:1140
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    Web page: http://www.krannert.purdue.edu/programs/phd
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    1. Aiyagari, S Rao & Wallace, Neil, 1991. "Existence of Steady States with Positive Consumption in the Kiyotaki-Wright Model," Review of Economic Studies, Wiley Blackwell, vol. 58(5), pages 901-16, October.
    2. Neil Wallace, 1997. "Absence-of-double-coincidence models of money: a progress report," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Win, pages 2-20.
    3. Wright, Randall, 1995. "Search, evolution, and money," Journal of Economic Dynamics and Control, Elsevier, vol. 19(1-2), pages 181-206.
    4. P. A. Diamond, 1982. "Money in Search Equilibrium," Working papers 297, Massachusetts Institute of Technology (MIT), Department of Economics.
    5. Trejos, Alberto & Wright, Randall, 1995. "Search, Bargaining, Money, and Prices," Journal of Political Economy, University of Chicago Press, vol. 103(1), pages 118-41, February.
    6. Kiyotaki, Nobuhiro & Wright, Randall, 1989. "On Money as a Medium of Exchange," Journal of Political Economy, University of Chicago Press, vol. 97(4), pages 927-54, August.
    7. Neil Wallace, 1998. "A dictum for monetary theory," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Win, pages 20-26.
    8. Shouyong Shi, 1997. "Money and specialization," Economic Theory, Springer, vol. 10(1), pages 99-133.
    9. Cosimano, Thomas F, 1996. "Intermediation," Economica, London School of Economics and Political Science, vol. 63(249), pages 131-43, February.
    10. Yavas, Abdullah, 1994. "Middlemen in Bilateral Search Markets," Journal of Labor Economics, University of Chicago Press, vol. 12(3), pages 406-29, July.
    11. Li, Yiting, 1999. "Money and Middlemen in an Economy with Private Information," Economic Inquiry, Western Economic Association International, vol. 37(1), pages 1-12, January.
    12. Li, Yiting, 1998. "Middlemen and private information," Journal of Monetary Economics, Elsevier, vol. 42(1), pages 131-159, June.
    13. Marimon, Ramon & McGrattan, Ellen & Sargent, Thomas J., 1990. "Money as a medium of exchange in an economy with artificially intelligent agents," Journal of Economic Dynamics and Control, Elsevier, vol. 14(2), pages 329-373, May.
    14. George J. Stigler, 1961. "The Economics of Information," Journal of Political Economy, University of Chicago Press, vol. 69, pages 213.
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