Intermediation in Markets for Goods and Markets for Assets

47 Pages Posted: 29 Mar 2019

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

Multiple version iconThere are 2 versions of this paper

Date Written: 2019-03-01

Abstract

We analyze agents' decisions to act as producers or intermediaries using equilibrium search theory. Extending previous analyses in various ways, we ask when intermediation emerges and study its efficiency. In one version of the framework, meant to resemble retail, middlemen hold goods, which entails (storage) costs; that model always displays uniqueness and simple transition dynamics. In another version, middlemen hold assets, which entails negative costs, that is, positive returns; that model can have multiple equilibria and complicated belief-based dynamics. These results are consistent with the venerable view that intermediation in financial markets is more prone to instability than in goods markets.

Keywords: middlemen, intermediation, search, bargaining, multiplicity

JEL Classification: D83, G24

Suggested Citation

Nosal, Ed and Wong, Yuet-Yee and Wright, Randall D., Intermediation in Markets for Goods and Markets for Assets (2019-03-01). FRB Atlanta Working Paper No. 2019-5. Available at SSRN: https://ssrn.com/abstract=3362078 or http://dx.doi.org/10.29338/wp2019-05

Ed Nosal (Contact Author)

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

1000 Peachtree Street N.E.
Atlanta, GA 30309-4470
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Yuet-Yee Wong

Binghamton University

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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