Marketmaking Middlemen
- Resource Type
- Authors
- Pieter Gautier; Bo Hu; Makoto Watanabe
- Source
- Rand Journal of Economics, 54(1), 83-103. Rand Journal of Economics
Gautier, P, Hu, B & Watanabe, M 2023, ' Marketmaking Middlemen ', Rand Journal of Economics, vol. 54, no. 1, pp. 83-103 . https://doi.org/10.1111/1756-2171.12431
- Subject
- Economics and Econometrics
- Language
- English
- ISSN
- 0741-6261
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.