Review of Economic Design

, Volume 3, Issue 1, pp 75–89

Equilibrium in a market with intermediation is Walrasian

  • John Wooders

DOI: 10.1007/s100580050006

Cite this article as:
Wooders, J. Rev Econ Design (1997) 3: 75. doi:10.1007/s100580050006

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.

Key words:Intermediation, bid, ask, matching, Walrasian equilibrium JEL classification: C72, C78, L12 

Copyright information

© Springer-Verlag Berlin Heidelberg 1997

Authors and Affiliations

  • John Wooders
    • 1
  1. 1. Department of Economics, University of Arizona, McClelland Hall, Tucson, AZ 85721, USA (e-mail: jwooders@bpa.arizona.edu) US

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