Marketmaking Middlemen

44 Pages Posted: 28 Sep 2016

See all articles by Pieter A. Gautier

Pieter A. Gautier

Free University of Amsterdam; Tinbergen Institute Amsterdam (TIA); IZA Institute of Labor Economics

Bo Hu

VU University Amsterdam

Makoto Watanabe

Vrije Universiteit Amsterdam, School of Business and Economics

Multiple version iconThere are 4 versions of this paper

Date Written: August 9, 2016

Abstract

This paper develops a model in which market structure is determined endogenously by the choice of intermediation mode. We consider two representative business modes of intermediation that are widely used in real-life markets: one is a middleman mode by which an intermediary holds inventories which he stocks from sellers for the purpose of reselling to buyers; the other is a market-making mode by which an intermediary offers a platform for buyers and sellers to trade with each other. In our model, buyers and sellers can simultaneously search in an outside market and use the intermediation service. We show that a market-making middleman, who adopts the mixture of these two intermediation modes, can emerge in a directed search equilibrium.

Keywords: middlemen, market-makers, platform, directed search

JEL Classification: D400, G200, L100, L800, R100

Suggested Citation

Gautier, Pieter A. and Hu, Bo and Watanabe, Makoto, Marketmaking Middlemen (August 9, 2016). CESifo Working Paper Series No. 6030, Available at SSRN: https://ssrn.com/abstract=2843494 or http://dx.doi.org/10.2139/ssrn.2843494

Pieter A. Gautier

Free University of Amsterdam ( email )

Amsterdam, ND North Holland
Netherlands

Tinbergen Institute Amsterdam (TIA) ( email )

Gustav Mahlerplein 117
Amsterdam, 1082 MS
Netherlands

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

Bo Hu

VU University Amsterdam ( email )

De Boelelaan 1105
Amsterdam, ND North Holland 1081 HV
Netherlands

Makoto Watanabe (Contact Author)

Vrije Universiteit Amsterdam, School of Business and Economics ( email )

De Boelelaan 1105
Amsterdam, 1081HV
Netherlands

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