Searching and Bargaining with Middlemen

TL;DR

This paper models decentralized markets with middlemen as a bargaining game to analyze how network structure affects efficiency, fairness, and surplus sharing, introducing the concept of limit stationary equilibrium.

Contribution

It introduces the limit stationary equilibrium concept for trading networks and analyzes the impact of network structure on middlemen competition, trade delays, and surplus distribution.

Findings

Network structure influences middlemen competition.

Endogenous delays emerge in trade processes.

Surplus sharing depends on network and bargaining dynamics.

Abstract

We study decentralized markets with the presence of middlemen, modeled by a non-cooperative bargaining game in trading networks. Our goal is to investigate how the network structure of the market and the role of middlemen influence the market's efficiency and fairness. We introduce the concept of limit stationary equilibrium in a general trading network and use it 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.