Search, Dealers, and the Terms of Trade

14 Pages Posted: 21 Dec 2014

See all articles by Gabriele Camera

Gabriele Camera

Chapman University - Economic Science Institute; University of Bologna - Dept. of Economics

Date Written: March 1, 2001

Abstract

I study a search-theoretic model with pairwise meetings where dealers arise endogenously. The extent of intermediation depends on its cost, trade frictions, and the dealers’ ability to negotiate favorable terms of trade. Under Nash bargaining, there is a unique equilibrium where dealers buy and hold the low-storage-cost good and, depending on their relative bargaining power, resell it at a premium or a discount. The distribution of the terms of trade is non-degenerate unless storage cost and frictions vanish. Due to an externality created by intermediation, the efficient allocation can be achieved only if dealers can charge a positive markup.

Keywords: Search, Intermediation, Prices, Bargaining

Suggested Citation

Camera, Gabriele, Search, Dealers, and the Terms of Trade (March 1, 2001). Review of Economic Dynamics, Vol. 4, 2001. Available at SSRN: https://ssrn.com/abstract=2540695

Gabriele Camera (Contact Author)

Chapman University - Economic Science Institute ( email )

Orange, CA 92866
United States

HOME PAGE: http://www1.chapman.edu/~camera/

University of Bologna - Dept. of Economics ( email )

Strada Maggiore 45
Bologna, 40125
Italy

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