Searching And Bargaining With Middlemen

We study decentralized markets which include middlemen, producers and consumers connected via a trading network. We develop a model for trade in such settings based on non-cooperative bargaining with search frictions. Our goal is to investigate how the structure of the trading network and the role of middlemen influence the market’s efficiency and fairness. To this end, we introduce the concept of limit stationary equilibrium which characterizes the trading patterns that emerge in a general trading network with a large population of agents. We use this concept to analyze how competition among middlemen is influenced by the network structure, how endogenous delay emerges in trade and how surplus is shared between producers and consumers.

This is joint work with Thanh Nguyen at Purdue University and Randy Berry at
Northwestern University.