This paper develops a model in which market structure is determined endogenously by the choice of intermediation mode. We consider two representative business modes of intermediation that are widely used in real-life markets: one is a market-making mode where an intermediary offers a plat-form for buyers and sellers to trade with each other; the other is a middleman mode where an intermediary holds inventories which he stocks from sellers and resells to buyers. In our model, buyers and sellers have an option to simultaneously search in an outside market as well as in the monopolistic intermediary. We derive the condition under which the mixture of the two intermediation modes is selected over an exclusive use of either of the modes. Joint work with Pieter Gautier and Makoto Watanabe.

Field: Industrial Organisation

Discussant: Xinying Fu (VU University Amsterdam)p>