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Middlemen: A Directed Search Equilibrium Approach

Author

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  • Makoto Watanabe

    (VU University Amsterdam)

Abstract

This paper studies an intermediated market operated by middlemen with high inventory holdings. I present a directed search model in which middlemen are less likely to experience a stockout because they have the advantage of inventory capacity, relative to other sellers. The model explains why popular items are sold at a larger premium, and everyday items at a larger discount, by large-scaled intermediaries. The concentration of middlemen's market, i.e., few middlemen, each with large capacity, can lead to a higher matching efficiency, but with a lower total welfare, compared to having many middlemen, each with small capacity.

Suggested Citation

  • Makoto Watanabe, 2012. "Middlemen: A Directed Search Equilibrium Approach," Tinbergen Institute Discussion Papers 12-138/V, Tinbergen Institute.
  • Handle: RePEc:tin:wpaper:20120138
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    File URL: http://papers.tinbergen.nl/12138.pdf
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Athanasios Geromichalos, 2012. "Directed Search and the Bertrand Paradox," Working Papers 1221, University of California, Davis, Department of Economics.
    2. Holzner, Christian Ludwig & Watanabe, Makoto, 2015. "Labor Market Equilibrium with Public Employment Agency," Annual Conference 2015 (Muenster): Economic Development - Theory and Policy 113097, Verein für Socialpolitik / German Economic Association.
    3. Derek G. Stacey, 2015. "Posted Prices, Search and Bargaining," Working Papers 059, Ryerson University, Department of Economics, revised Dec 2017.
    4. Yuet-Yee Wong & Randall Wright, 2011. "Buyers, Sellers and Middlemen: Variations on Search-Theoretic Themes," NBER Working Papers 17511, National Bureau of Economic Research, Inc.
    5. Benjamin Lester & Guillaume Rocheteau & Pierre‐Olivier Weill, 2015. "Competing for Order Flow in OTC Markets," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 47(S2), pages 77-126, June.
    6. Yuet-Yee Wong & Randall Wright, 2011. "Buyers, Sellers and Middlemen: Variations on Search-Theoretic Themes," 2011 Meeting Papers 374, Society for Economic Dynamics.
    7. Yuet-Yee Wong & Randall Wright, 2011. "Buyers, sellers and middlemen: variations in search theory," Working Papers 691, Federal Reserve Bank of Minneapolis.

    More about this item

    Keywords

    Directed Search; Intermediation; Inventory holdings;

    JEL classification:

    • D4 - Microeconomics - - Market Structure, Pricing, and Design
    • F1 - International Economics - - Trade
    • G2 - Financial Economics - - Financial Institutions and Services
    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance
    • L8 - Industrial Organization - - Industry Studies: Services
    • R1 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics

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