More on Middlemen: Equilibrium Entry and Efficiency in Intermediated Markets

53 Pages Posted: 14 Dec 2014

See all articles by Ed Nosal

Ed Nosal

Federal Reserve Banks - Federal Reserve Bank of Atlanta

Yuet‐Yee Wong

Binghamton University

Randall Wright

University of Wisconsin - Madison - Department of Finance, Investment and Banking; Federal Reserve Banks - Federal Reserve Bank of Minneapolis

Date Written: November 1, 2014

Abstract

This paper generalizes Rubinstein and Wolinsky’s 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 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.

Keywords: Middlemen, Intermediation, Search, Bargaining, Entry

JEL Classification: G24, D83

Suggested Citation

Nosal, Ed and Wong, Yuet‐Yee and Wright, Randall D., More on Middlemen: Equilibrium Entry and Efficiency in Intermediated Markets (November 1, 2014). FRB of Chicago Working Paper No. 2014-18. Available at SSRN: https://ssrn.com/abstract=2537534 or http://dx.doi.org/10.2139/ssrn.2537534

Ed Nosal (Contact Author)

Federal Reserve Banks - Federal Reserve Bank of Atlanta ( email )

1000 Peachtree Street N.E.
Atlanta, GA 30309-4470
United States

Yuet‐Yee Wong

Binghamton University ( email )

PO Box 6001
Binghamton, NY 13902-6000
United States

Randall D. Wright

University of Wisconsin - Madison - Department of Finance, Investment and Banking ( email )

975 University Avenue
Madison, WI 53706
United States
608-263-3860 (Phone)

Federal Reserve Banks - Federal Reserve Bank of Minneapolis

90 Hennepin Avenue
Minneapolis, MN 55480
United States

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