Marketmaking Middlemen

This article develops a model in which market structure is determined endogenously by the choice of intermediation mode. There are two representative modes of intermediation that are widely used in real‐life markets: one is a middleman mode where an intermediary purchases inventory from the wholesal...

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Bibliographic Details
Published inThe Rand journal of economics Vol. 54; no. 1; pp. 83 - 103
Main Authors Gautier, Pieter, Hu, Bo, Watanabe, Makoto
Format Journal Article
LanguageEnglish
Published Santa Monica Rand Corporation 01.04.2023
Subjects
Market structure
Middlemen
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Summary:This article develops a model in which market structure is determined endogenously by the choice of intermediation mode. There are two representative modes of intermediation that are widely used in real‐life markets: one is a middleman mode where an intermediary purchases inventory from the wholesale market and resells to buyers; the other is a market‐making mode where an intermediary offers a platform for buyers and sellers to meet and trade. We show that a marketmaking middleman, who adopts a mixture of these two intermediation modes, can emerge in a directed search equilibrium and discuss implications for the market structure.
ISSN:0741-6261
1756-2171
DOI:10.1111/1756-2171.12431