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Informed intermediaries

Author

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  • Onuchic, Paula

Abstract

I develop a theory of intermediation in a market where agents meet bilaterally to trade and buyers cannot commit to payments. Some agents observe the past trading history of traders in the market. These informed agents can secure trades by punishing traders who previously defaulted. The punishing strategy affects equilibrium prices and determines which trades are hindered by the risk of default. Intermediation is a robust equilibrium feature, generated by asymmetric punishing strategies that yield informed agents either more effective opportunities to trade or the ability to extract more surplus in trades.

Suggested Citation

  • Onuchic, Paula, 2022. "Informed intermediaries," LSE Research Online Documents on Economics 125655, London School of Economics and Political Science, LSE Library.
    • Handle: RePEc:ehl:lserod:125655
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    File URL: http://eprints.lse.ac.uk/125655/
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    Cited by:

    1. Li, Yunan & Zhang, Xingtan, 2024. "Collective decision through an informed mediator," Journal of Economic Theory, Elsevier, vol. 218(C).

    More about this item

    Keywords

    intermediation; limited commitment; bilateral trade; trade network;
    All these keywords.

    JEL classification:

    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • D85 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Network Formation

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