Middlemen: A directed search equilibrium approach

Makoto Watanabe*

*Corresponding author for this work

Research output: Contribution to JournalArticleAcademicpeer-review

Abstract

This paper studies an intermediated market operated by middlemen with high inventory holdings. I present a directed search model in which middlemen are less likely to experience a stockout because they have the advantage of inventory capacity, relative to other sellers. The model explains why the empirical relationship between middlemen's premium and their inventory capacity can be positive in some markets (e. g., rental video shops, used-car dealers) and negative in other markets (e. g., supermarkets, theater ticket offices). I also examine the implication of the configuration of middlemen's market in terms of the size and the number of middlemen for the equilibrium premium with and without free entry.

Original languageEnglish
Article number20190258
Pages (from-to)1-37
Number of pages37
JournalB.E. Journal of Macroeconomics
Volume20
Issue number2
Early online date26 Jun 2020
DOIs
Publication statusPublished - Jun 2020

Keywords

  • Directed search
  • Intermediation
  • Inventory holdings
  • Retail markups

Fingerprint

Dive into the research topics of 'Middlemen: A directed search equilibrium approach'. Together they form a unique fingerprint.

Cite this