Gautier, P., Hu, B. and Watanabe, M. (2023). Marketmaking Middlemen RAND Journal of Economics, 54(1):83--103.
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Affiliated authorsPieter Gautier, Makoto Watanabe
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Publication year2023
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JournalRAND Journal of Economics
This article develops a model in which market structure is determined endogenously by the choice of intermediation mode. There are two representative modes of intermediation that are widely used in real-life markets: one is a middleman mode where an intermediary purchases inventory from the wholesale market and resells to buyers; the other is a market-making mode where an intermediary offers a platform for buyers and sellers to meet and trade. We show that a marketmaking middleman, who adopts a mixture of these two intermediation modes, can emerge in a directed search equilibrium and discuss implications for the market structure.