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  4. Summer 1996
  5. Market Microstructure and Intermediation

Market Microstructure and Intermediation

  • Daniel F. Spulber
Journal of Economic Perspectives
vol. 10, no. 3, Summer 1996
(pp. 135-152)
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Abstract

This paper emphasizes the important role played by intermediaries in the economy, including wholesalers, retailers, and financial firms. The paper defines an intermediary as an economic agent that purchases from suppliers for resale to buyers or that helps buyers and sellers meet and transact. Intermediaries coordinate transactions and provide the institutions of exchange that constitute market microstructure. Intermediaries set prices, manage inventories, coordinate exchange, and provide information through guarantees and delegated monitoring. These crucial activities help to explain how markets attain equilibrium prices and quantities. The paper suggests that the study of intermediation should be incorporated into mainstream economic analysis.

Citation

Spulber, Daniel F. 1996. "Market Microstructure and Intermediation." Journal of Economic Perspectives, 10 (3): 135-152. DOI: 10.1257/jep.10.3.135

JEL Classification

  • L11 Production, Pricing, and Market Structure; Size Distribution of Firms
  • L14 Transactional Relationships; Contracts and Reputation; Networks
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