Search, Dealers, and the Terms of Trade
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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- Wright, Randall, 1995. "Search, evolution, and money," Journal of Economic Dynamics and Control, Elsevier, vol. 19(1-2), pages 181-206.
- S. Rao Aiyagari & Neil Wallace, 1991.
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Review of Economic Studies,
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- S. Rao Aiyagari & Neil Wallace, 1991. "Existence of steady states with positive consumption in the Kiyotaki-Wright model," Working Papers 428, Federal Reserve Bank of Minneapolis.
- Shouyong Shi, 1997. "Money and specialization," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 10(1), pages 99-133.
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- Neil Wallace, 1998. "A dictum for monetary theory," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Win, pages 20-26.
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- 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.
- Yavas, Abdullah, 1994. "Middlemen in Bilateral Search Markets," Journal of Labor Economics, University of Chicago Press, vol. 12(3), pages 406-29, July.
- 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.
- 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.
- Cosimano, Thomas F, 1996. "Intermediation," Economica, London School of Economics and Political Science, vol. 63(249), pages 131-43, February.
- Diamond, Peter A, 1984.
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Econometric Society, vol. 52(1), pages 1-20, January.
- George J. Stigler, 1961. "The Economics of Information," Journal of Political Economy, University of Chicago Press, vol. 69, pages 213.
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