Exclusive Nightclubs and Lonely Hearts Columns: Non-Monotone Participation in Optional Intermediation

30 Pages Posted: 22 Nov 2010

See all articles by Gianni De Fraja

Gianni De Fraja

University of Nottingham; Universita' di Roma; Centre for Economic Policy Research (CEPR)

Jozsef Sakovics

The University of Edinburgh

Date Written: October 2010

Abstract

In many decentralised markets, the traders who benefit most from an exchange do not employ intermediaries even though they could easily afford them. At the same time, employing intermediaries is not worthwhile for traders who benefit little from trade. Together, these decisions amount to non-monotone participation choices in intermediation: only traders of middle "type" employ intermediaries, while the rest, the high and the low types, prefer to search for a trading partner directly. We provide a theoretical foundation for this, hitherto unexplained, phenomenon. We build a dynamic matching model, where a trader's equilibrium bargaining share is a convex increasing function of their types. We also show that this is indeed necessary condition for the existence of non-monotone equilibria.

Keywords: dynamic matching, intermediation, Two-sided markets

JEL Classification: C78, D40

Suggested Citation

De Fraja, Gianni and Sakovics, Jozsef, Exclusive Nightclubs and Lonely Hearts Columns: Non-Monotone Participation in Optional Intermediation (October 2010). CEPR Discussion Paper No. DP8059, Available at SSRN: https://ssrn.com/abstract=1711072

Gianni De Fraja (Contact Author)

University of Nottingham ( email )

University Park
Nottingham, NG8 1BB
United Kingdom

Universita' di Roma ( email )

Dipartimento SEFEMEQ
Via Columbia n.2
Rome, Rome 00133
Italy

HOME PAGE: http://www.economia.uniroma2.it/docenti

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Jozsef Sakovics

The University of Edinburgh ( email )

30 Buccleuch Place
Edinburgh, EH8 9JT, Scotland
United Kingdom

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