Market Microstructure and Intermediation

Daniel F Spulber
Journal of Economic Perspectives

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references Alfred D. Chandler, Jr. on 6/3/2019, 4:44:42 PM

excerpt Many markets are guided by the "visible hand" of firms, as observed by Alfred D. Chandler (1977), while in others, firms are guided by the "invisible hand" of the market, as emphasized by Adam Smith. Firms establish and operate most markets by setting prices, carrying out transactions, forming and monitoring contracts, and producing and distributing information. 135 on 6/3/2019, 4:46:21 PM

tag-as intermediation on 6/3/2019, 4:46:54 PM

excerpt In thinking about the role of intermediaries in an economy, it is analytically useful to recognize three types of agents: consumers, market-taking firms and market-making firms. Market-taking firms take price signals and market institutions as givens. In contrast, market-making firms are intermediaries that create and operate markets. Market makers include not only price-making firms but also other market institutions such as organized exchanges for securities, options, futures and other financial assets. They coordinate transactions between consumers, between market-taking firms, between consumers and market-taking firms, and between other intermediaries. 136-137 on 6/3/2019, 4:50:09 PM

excerpt When companies act as intermediaries, they not only arbitrage between buyers and sellers, but they also coordinate their transactions through price signals. The traditional supply and demand model can be applied to understanding the market clearing actions of intermediaries. 141 on 6/3/2019, 4:51:51 PM

excerpt Intermediaries must compete with decentralized exchange, in which consumers and suppliers seek each other out and negotiate prices directly. 146 on 6/3/2019, 4:53:26 PM

tag-as important on 6/3/2019, 4:55:19 PM

references The Market for Lemons on 6/3/2019, 4:57:38 PM

via Biglaiser (1993) shows that introducing a monopoly intermediary into a market with adverse selection enhances efficiency. The intermediary has a greater incentive to invest in monitoring quality than does an individual buyer, since the intermediary buys more goods. Thus, intermediaries are better able to distinguish higher-quality suppliers from those with lower quality. 148 on 6/3/2019, 4:59:15 PM

excerpt Intermediaries, by setting prices, purchasing and sales decisions, managing inventories, supplying information and coordinating transactions, provide the underlying microstructure of most markets. 149 on 6/3/2019, 5:00:27 PM

references Competitive equilibrium on 6/3/2019, 5:01:35 PM

references Invisible hand on 6/3/2019, 5:04:51 PM

cites Whither Socialism? on 6/10/2019, 11:52:47 AM

cites The Nature of the Firm on 6/10/2019, 11:57:22 AM

Automated Media: An Institutional Theory Perspective on Algorithmic Media Production and Consumption cites Market Microstructure and Intermediation on 6/3/2019, 4:42:56 PM