Tough Middlemen: A Theory of Intermediation as Pure Rent Extraction
Event details
| Date | 14.10.2016 |
| Hour | 10:30 › 12:00 |
| Speaker | Gregor JAROSCH (Stanford University) |
| Location | |
| Category | Conferences - Seminars |
We study a decentralized market in which individuals with time-varying taste for an asset trade in bilateral meetings. We show that, when agents differ in terms of their ability to negotiate, those with a superior bargaining technology become intermediaries, in the sense that they carry out trades purely motivated by re-trading considerations. These non-fundamental trades are redistributional and leave the quality of the allocation unaltered, implying that they are socially inefficient in the presence of transaction costs. The coexistence of market participants with heterogeneous bargaining technology is a natural equilibrium outcome when ex-ante homogeneous agents can acquire negotiation skills at a cost. Resources spent on the superior bargaining technology constitute a reduction in welfare. Moreover, the incentives for rent-extraction grow as the market becomes less frictional and welfare may fall. We use the framework to study the consequences of a ban in price-discrimination, a minimum holding time requirement, and transaction fees.
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