Search and Intermediation: Toward a Model of the Merchant Trader

31 Pages Posted: 4 Dec 2007

See all articles by Gautam Bose

Gautam Bose

UNSW Australia Business School, School of Economics

Abhijit Sengupta

The University of Sydney - Discipline of Economics

Abstract

This paper develops a dynamic model of an economy in which homogeneous agents choose between specializing as producers or as merchants, and can change occupation at any time. Merchants operate along a decentralized search market and provide immediacy in exchange in return for a price. We characterize equilibria in symmetric Markov strategies, and derive conditions under which merchants and their clients form a repeated relationship. We analyze welfare and discuss the prospect of an endogenous rise of an institution of intermediation.

Keywords: Search, intermediation, repeated interaction, Markov equilibrium, endogenous emergence of merchants

JEL Classification: D02, D51, D83

Suggested Citation

Bose, Gautam and Sengupta, Abhijit, Search and Intermediation: Toward a Model of the Merchant Trader. Available at SSRN: https://ssrn.com/abstract=1052301 or http://dx.doi.org/10.2139/ssrn.1052301

Gautam Bose (Contact Author)

UNSW Australia Business School, School of Economics ( email )

High Street
Sydney, NSW 2052
Australia

Abhijit Sengupta

The University of Sydney - Discipline of Economics ( email )

P.O. Box H58
Australia Square
Sydney, NSW 2006
Australia
+61 2 9351 6612 (Phone)
+61 2 9351 4433 (Fax)

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