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Bilateral trading in networks

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Condorelli, Daniele, Galeotti, Andrea and Renou, Ludovic (2017) Bilateral trading in networks. The Review of Economic Studies, 84 (1). pp. 82-105. doi:10.1093/restud/rdw034

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Official URL: http://dx.doi.org/10.1093/restud/rdw034

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Abstract

We endogenize intermediaries' choice to operate as agents or merchants in a market where there are frictions due to asymmetric information about consumption values. A seller has an object for sale and can reach buyers only through intermediaries. Intermediaries can either mediate the transaction by buying and reselling—the merchant mode—or refer buyers to the seller for a fee—the referral mode. When the seller has a strong bargaining position and can condition the asking price to the intermediaries' business model choice, all intermediaries specialize in agency. The seller's and intermediaries' joint profits equal the seller's profits when he has access to all buyers. When the seller does not have such bargaining power, the level of the referral fee and the degree of competition among intermediaries determine the business mode adoption. A hybrid agency–merchant mode may be adopted in equilibrium. Banning the referral mode can decrease welfare because the merchant mode is associated with additional allocative distortions due to asymmetric information.

Item Type: Journal Article
Subjects: H Social Sciences > HF Commerce
H Social Sciences > HG Finance
Divisions: Faculty of Social Sciences > Economics
Library of Congress Subject Headings (LCSH): Intermediation (Finance), Trading companies
Journal or Publication Title: The Review of Economic Studies
Publisher: Oxford University Press
ISSN: 0034-6527
Official Date: January 2017
Dates:
DateEvent
January 2017Published
11 July 2017Available
19 May 2017Accepted
Volume: 84
Number: 1
Page Range: pp. 82-105
DOI: 10.1093/restud/rdw034
Status: Peer Reviewed
Publication Status: Published
Reuse Statement (publisher, data, author rights): This is the peer reviewed version of the following article: Daniele Condorelli, Andrea Galeotti, Ludovic Renou, Bilateral Trading in Networks, The Review of Economic Studies, Volume 84, Issue 1, January 2017, Pages 82–105, https://doi.org/10.1093/restud/rdw034, which has been published in final form at https://doi.org/10.1093/restud/rdw034. This article may be used for non-commercial purposes in accordance with Wiley Terms and Conditions for Use of Self-Archived Versions.
Access rights to Published version: Restricted or Subscription Access
RIOXX Funder/Project Grant:
Project/Grant IDRIOXX Funder NameFunder ID
RES-000-22-3902[ESRC] Economic and Social Research Councilhttp://dx.doi.org/10.13039/501100000269
ERC-starting grantEuropean Research Councilhttp://dx.doi.org/10.13039/501100000781

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