A Dynamic Model of Search and Intermediation

Gautam Bose, Abhijit Sengupta
2010 Social Science Research Network  
This paper develops a dynamic model of an economy with search frictions in which homogeneous agents choose between specializing as producers or as merchants, and can change occupation at any time. Merchants operate alongside a decentralized search market and provide immediacy in trade in return for a price. Agents who discover the location of a merchant have the option of returning to the merchant in future periods, paying the merchant's price and avoiding search. We characterize equilibria in
more » ... rize equilibria in symmetric strategies with one-period memory, and derive conditions under which merchants and their clients form a repeated relationship. We also investigate the prospect of an endogenous emergence of an institution of intermediation when the status quo ante is an economy with no merchants.
doi:10.2139/ssrn.1550088 fatcat:2zvndipsurabzfilehw54fgk2q