Intermediation in Markets for Goods and Markets for Assets

47 Pages Posted: 14 Oct 2019

See all articles by Ed Nosal

Ed Nosal

Federal Reserve Banks - Federal Reserve Bank of Atlanta

YY Linda 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: October 1, 2019

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, i.e., 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: G24, D83

Suggested Citation

Nosal, Ed and Wong, yy and Wright, Randall D., Intermediation in Markets for Goods and Markets for Assets (October 1, 2019). Available at SSRN: https://ssrn.com/abstract=3462732 or http://dx.doi.org/10.2139/ssrn.3462732

Ed Nosal

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

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

Yy Wong (Contact Author)

Binghamton University ( email )

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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