Equilibrium in a market with intermediation is Walrasian

Research output: Contribution to journalArticle

Abstract

We show that a profit maximizing monopolistic intermediary may behave approximately like a Walrasian auctioneer by setting bid and ask prices nearly equal to Walrasian equilibrium prices. In our model agents choose to trade either through the intermediary or privately. Buyers (sellers) trading through the intermediary potentially trade immediately at the ask (bid) price, but sacrifice the spread as gains. A buyer or seller who trades privately shares all the gains to trade with this trading partner, but risks costly delay in finding a partner. We show that as the cost of delay vanishes, the equilibrium bid and ask prices converge to the Walrasian equilibrium prices.

Original languageEnglish (US)
Pages (from-to)75-89
Number of pages15
JournalReview of Economic Design
Volume3
Issue number1
DOIs
StatePublished - Jan 1 1997

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Intermediation
Bid
Intermediaries
Walrasian equilibrium
Seller
Equilibrium price
Buyers
Profit
Costs

Keywords

  • Ask
  • Bid
  • Intermediation
  • Matching
  • Walrasian equilibrium

ASJC Scopus subject areas

  • Economics, Econometrics and Finance(all)

Cite this

Equilibrium in a market with intermediation is Walrasian. / Wooders, John.

In: Review of Economic Design, Vol. 3, No. 1, 01.01.1997, p. 75-89.

Research output: Contribution to journalArticle

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