Premium
More on Middlemen: Equilibrium Entry and Efficiency in Intermediated Markets
Author(s) -
NOSAL ED,
WONG YUETYEE,
WRIGHT RANDALL
Publication year - 2015
Publication title -
journal of money, credit and banking
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.763
H-Index - 108
eISSN - 1538-4616
pISSN - 0022-2879
DOI - 10.1111/jmcb.12213
Subject(s) - intermediation , production (economics) , benchmark (surveying) , general equilibrium theory , economics , matching (statistics) , microeconomics , set (abstract data type) , financial intermediary , mathematical economics , computer science , mathematics , finance , statistics , programming language , geography , geodesy
This paper generalizes Rubinstein and Wolinsky's (1987) model of middlemen (intermediation) by incorporating production and search costs, plus more general matching and bargaining. This allows us to study many new issues, including entry, efficiency, and dynamics. In the benchmark model, equilibrium exists uniquely and involves production and intermediation for some parameters but not others. Sometimes intermediation is essential: the market operates if and only if middlemen are active. If bargaining powers are set correctly equilibrium is efficient; if not there can be too much or too little economic activity. This is novel, compared to the original Rubinstein–Wolinsky model, where equilibrium is always efficient.