Equilibrium in a market with intermediation is Walrasian

Publication Type:
Journal Article
Review of Economic Design, 1997, 3 (1), pp. 75 - 89
Issue Date:
Filename Description Size
Thumbnail2010005929OK.pdf126.03 kB
Adobe PDF
Full metadata record
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. © Springer-Verlag 1997.
Please use this identifier to cite or link to this item: