Trading Networks and Equilibrium Intermediation

40 Pages Posted: 19 Jan 2018 Last revised: 9 Jun 2019

See all articles by Maciej H. Kotowski

Maciej H. Kotowski

Harvard University - Harvard Kennedy School (HKS)

C. Matthew Leister

Monash University - Department of Economics

Date Written: June 2019

Abstract

We study an economy where intermediaries facilitate exchange between a supplier and consumers. The set of feasible transactions is characterized by a network and an efficient auction protocol sets prices. We examine trading networks compatible with a free-entry equilibrium. There is under-entry of intermediary traders in equilibrium due to complementarities among upstream and downstream traders. When intermediaries are speculators, who derive no private value from the tradable good, equilibrium networks exhibit an asymmetric structure with few intermediaries linking to the supplier. Generally, free-entry and competition may fail to purge redundant intermediaries from the market.

Suggested Citation

Kotowski, Maciej H. and Leister, Christian Matthew, Trading Networks and Equilibrium Intermediation (June 2019). HKS Working Paper No. RWP18-001. Available at SSRN: https://ssrn.com/abstract=3104754 or http://dx.doi.org/10.2139/ssrn.3104754

Maciej H. Kotowski (Contact Author)

Harvard University - Harvard Kennedy School (HKS) ( email )

79 John F. Kennedy Street
Cambridge, MA 02138
United States

Christian Matthew Leister

Monash University - Department of Economics ( email )

900 Dandenong Rd
Caulfield East, VIC 3145
Australia

HOME PAGE: http://sites.google.com/site/cmleister/home

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