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 language | English (US) |
|---|---|
| Pages (from-to) | 75-89 |
| Number of pages | 15 |
| Journal | Review of Economic Design |
| Volume | 3 |
| Issue number | 1 |
| DOIs | |
| State | Published - Jan 1 1997 |
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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 journal › Article
}
TY - JOUR
T1 - Equilibrium in a market with intermediation is Walrasian
AU - Wooders, John
PY - 1997/1/1
Y1 - 1997/1/1
N2 - 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.
AB - 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.
KW - Ask
KW - Bid
KW - Intermediation
KW - Matching
KW - Walrasian equilibrium
UR - http://www.scopus.com/inward/record.url?scp=34249083312&partnerID=8YFLogxK
UR - http://www.scopus.com/inward/citedby.url?scp=34249083312&partnerID=8YFLogxK
U2 - 10.1007/s100580050006
DO - 10.1007/s100580050006
M3 - Article
AN - SCOPUS:34249083312
VL - 3
SP - 75
EP - 89
JO - Review of Economic Design
JF - Review of Economic Design
SN - 1434-4742
IS - 1
ER -