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Search, Dealers, and the Terms of Trade

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  • Camera, G.

Abstract

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.

Suggested Citation

  • Camera, G., 2001. "Search, Dealers, and the Terms of Trade," Purdue University Economics Working Papers 1140, Purdue University, Department of Economics.
    • Handle: RePEc:pur:prukra:1140
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    References listed on IDEAS

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    Cited by:

    1. Nosal, Ed & Wong, Yuet-Yee & Wright, Randall, 2019. "Intermediation in markets for goods and markets for assets," Journal of Economic Theory, Elsevier, vol. 183(C), pages 876-906.
    2. Mandal, Prasenjit & Jain, Tarun, 2023. "When do competing retailers benefit from sourcing through an intermediary?," International Journal of Production Economics, Elsevier, vol. 266(C).
    3. Randall Wright & Yuet‐Yee Wong, 2014. "Buyers, Sellers, And Middlemen: Variations On Search‐Theoretic Themes," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 55(2), pages 375-397, May.
    4. Yuet-Yee Wong & Randall Wright, 2011. "Buyers, sellers and middlemen: variations in search theory," Working Papers 691, Federal Reserve Bank of Minneapolis.

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    More about this item

    Keywords

    Search ; Intermediate ; Prices;
    All these keywords.

    JEL classification:

    • D10 - Microeconomics - - Household Behavior - - - General
    • D11 - Microeconomics - - Household Behavior - - - Consumer Economics: Theory

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