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Marketmaking Middlemen

Author

Listed:
  • Pieter Gautier

    (VU University Amsterdam, the Netherlands)

  • Bo Hu

    (VU University Amsterdam, the Netherlands)

  • Makoto Watanabe

    (VU University Amsterdam, the Netherlands)

Abstract

This paper develops a model in which market structure is determined endogenously by the choice of intermediation mode. We consider two representative business modes of intermediation that are widely used in real-life markets: one is a middleman mode by which an intermediary holds inventories which he stocks from sellers for the purpose of reselling to buyers; the other is a market-making mode by which an intermediary offers a platform for buyers and sellers to trade with each other. In our model, buyers and sellers can simultaneously search in an outside market and use the intermediation service. We show that a marketmaking middleman, who adopts the mixture of these two intermediation modes, can emerge in a directed search equilibrium.

Suggested Citation

  • Pieter Gautier & Bo Hu & Makoto Watanabe, 2016. "Marketmaking Middlemen," Tinbergen Institute Discussion Papers 16-060/VII, Tinbergen Institute.
  • Handle: RePEc:tin:wpaper:20160060
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    1. Marketmaking Middlemen
      by Christian Zimmermann in NEP-DGE blog on 2016-08-30 20:15:33

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    More about this item

    Keywords

    Middlemen; Marketmakers; Platform; Directed Search;
    All these keywords.

    JEL classification:

    • D4 - Microeconomics - - Market Structure, Pricing, and Design
    • 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

    NEP fields

    This paper has been announced in the following NEP Reports:

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