Marketmaking Middlemen

Pieter A. Gautier, Bo Hu, Makoto Watanabe
2016 Social Science Research Network  
Marketmaking Middlemen * This paper develops a model in which market structure is determined endogenously by the choice of intermediation mode. We consider two representative business modes of intermediation that are widely used in real-life markets: one is a middleman mode where an intermediary holds inventories which he stocks from sellers for the purpose of reselling to buyers; the other is a market-making mode where an intermediary offers a platform for buyers and sellers to trade with each
more » ... to trade with each other. In our model, buyers and sellers can simultaneously search in an outside market and use the intermediation service. We show that a marketmaking middleman, who adopts the mixture of these two intermediation modes, can emerge in a directed search equilibrium. JEL Classification: D4, G2, L1, L8, R1
doi:10.2139/ssrn.2820604 fatcat:lyi4guwhdbajreqs644s67y7om