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Trade through endogenous intermediaries |
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| Institution: | 1. University of the Thai Chamber of Commerce, Bangkok, 10400, Thailand;2. University of California, Santa Barbara, CA 93106, USA;1. Yale University, Box 208281, New Haven, CT 06520-8281, United States;2. Santa Fe Institute, 1399 Hyde Park Road, Santa Fe, NM 87501, United States;3. Columbia University, MC 4438, New York, NY 10027, United States;4. INTECH Investment Management, One Palmer Square, Suite 441, Princeton, NJ 08542, United States;5. University of Minnesota, 224 Church Street SE, Minneapolis, MN 55455, United States |
| Abstract: | We propose an intermediation core for an economy that explicitly specifies how traders organize themselves into trade cooperatives (intermediaries) and how trade between them gets carried out. The intermediation core allocations are closely related to the equilibrium allocations of a non-cooperative intermediation game in Townsend (1983). We show that the intermediation core contains all subgame perfect equilibrium allocations of the intermediation game, similar to the inclusion of competitive equilibrium allocations in the core usually studied. We identify intermediation core allocations that are also subgame perfect equilibrium allocations of the intermediation game in terms of the supporting intermediary structures. These results help to characterize subgame perfect equilibrium allocations of the intermediation game and to analyze their welfare and stability properties. |
| Keywords: | Endogenous intermediary Intermediation game Intermediation core Subgame perfect equilibrium Price formation |
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