Search,Dealers, and the Terms of Trade |
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| Institution: | 1. Department of Medical Microbiology, College of Medicine, University of Manitoba, 727 McDermot Avenue, Winnipeg, R3E 3P5, Canada;2. Department of Clinical Microbiology, Health Sciences Centre, MS673-820 Sherbrook Street, Winnipeg, R3A 1R9, Canada;3. Department of Medicine, 820 Sherbrook Street, Health Sciences Centre, Winnipeg, R3A 1R9, Canada;4. Department of Pathology and Laboratory Medicine, University of Calgary, 3535 Research Road, Calgary, T2L 2K8, Canada;5. School of Pharmacy, Chapman University, 9401 Jeronimo Road, Irvine, California, 92618, USA |
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| Abstract: | I study a search-theoretic model with pairwise meetings where dealers arise endogenously. The extent of intermediation depends on its cost, trade frictions, and the dealers' ability to negotiate favorable terms of trade. Under Nash bargaining, there is a unique equilibrium where dealers buy and hold the low-storage-cost good and, depending on their relative bargaining power, resell it at a premium or a discount. The distribution of the terms of trade is nondegenerate unless storage cost and frictions vanish. Due to an externality created by intermediation, the efficient allocation can be achieved only if dealers can charge a positive markup. |
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