Middlemen in Search Equilibrium: A Survey

This essay surveys the literature on middlemen—i.e., intermediation in exchange—reviewing, extending and consolidating key developments in the field. This is important because intermediated trade is common in reality but absent in standard general equilibrium theory. We focus on research using search theory. In various models, agents may act as middlemen when they are good at search, bargaining, recognizing quality, storing inventories, using credit, etc. The theory applies to markets for goods, inputs or assets. We discuss versions with indivisible or divisible goods, fixed or endogenous participation, stationary and dynamic equilibria, and some implications for efficiency and volatility.