Market Microstructure: Intermediaries and the Theory of the Firm By Daniel F. Spulber
Publisher: Cambridge University Press 1999-04-13 | 408 Pages | ISBN: 0521659787
This book presents a theory of the firm based on its economic role as an intermediary between customers and suppliers. Professor Spulber demonstrates how the intermediation theory of the firm explains firm formation by showing how they arise in a market equilibrium. In addition, the theory helps explain how markets work by showing how firms select market-clearing prices. Models of intermediation and market microstructure from microeconomics and finance shed considerable light on the formation and market making activities of firms. The intermediation theory of the firm is compared to existing economic theories of the firm including the neoclassical, industrial organization, transaction cost, and principal-agent models.
Preface and acknowledgments page ix
Introduction xiii
The intermediation theory of the firm xiii
Market microstructure xvii
Intermediated exchange versus matching and searching xix
Alleviating adverse selection xxii
Mitigating moral hazard and opportunism xxv
Delegation to intermediaries xxvii
Outline of the book xxix
Part I: Market microstructure and the intermediation
theory of the firm
1 Market microstructure and intermediation 3
1.1 Who decides? 4
1.2 The circular flow of economic activity 7
1.3 Comparison with other economic theories of the firm 13
1.4 Intermediation in the U.S. economy 21
1.5 Conclusion 26
2 Price setting and intermediation by firms 27
2.1 Price setting by intermediaries 28
2.2 Allocation under uncertainty and over time 34
2.3 Price adjustment by intermediaries 40
2.4 Inventories and market clearing by intermediaries 48
2.5 Conclusion 57
Part II: Competition and market equilibrium
3 Competition between intermediaries 61
3.1 Bertrand competition for inputs with homogeneous
products 64
3.2 Bertrand price competition with differentiated products
and purchases 68
3.3 Bertrand competition with switching costs 71
3.4 Bertrand competition when costs differ
3.5 Conclusion
4 Intermediation and general equilibrium
4.1 The neoclassical theory of the firm
4.2 Transaction costs and Walrasian equilibrium
4.3 Monopoly intermediation in general equilibrium
4.4 Monopolistic competition
4.5 Conclusion
Appendix
Part III: Intermediation versus decentralized trade
5 Matching and intermediation by firms
5.1 Intermediation versus a matching market
5.2 Costly intermediation
5.3 Intermediation with random matching
5.4 Intermediation and matching with production
5.5 Conclusion
6 Search and intermediation by firms
6.1 The market model
6.2 Market equilibrium
6.3 Comparison with Walrasian equilibrium and with monopoly
6.4 Market equilibrium with continual entry of consumers and suppliers
6.5 Conclusion
Appendix
Part IV: Intermediation under asymmetric information
7 Adverse selection in product markets 171
7.1 Intermediated trade 173
7.2 Intermediated trade with production 179
7.3 Market clearing by intermediaries 182
7.4 Product quality and guaranties by experts 193
7.5 Conclusion 197
Appendix 198
8 Adverse selection in financial markets 203
8.1 Insiders, liquidity traders, and specialists 205
8.2 Competition between specialists 211
8.3 Informed intermediaries 215
8.4 Credit rationing by financial intermediaries 219
8.5 Conclusion 224
Part V: Intermediation and transaction-cost theory
9 Transaction costs and the contractual theory of the firm 229
9.1 Transaction costs versus management costs 232
9.2 Transaction costs, uncertainty, and bounded rationality 236
9.3 Transaction costs and opportunism 245
9.4 Transaction costs and ownership 251
9.5 Conclusion 254
10 Transaction costs and the intermediation theory of the firm 256
10.1 Transaction costs and market microstructure 259
10.2 Intermediation and vertical integration 266
10.3 Intermediation and opportunism 276
10.4 Intermediation and ownership 281
10.5 Conclusion 285
Part VI: Intermediation and agency theory
11 Agency and the organizational-incentive theory of the firm 289
11.1 Vertical integration and the boundaries of the firm 291
11.2 Coordination of agents by the firm 299
11.3 Delegation of authority by owners to managers 306
11.4 Delegation of authority by managers to employees 314
11.5 Conclusion 317
12 Agency and the intermediation theory of the firm 319
12.1 What is an agent? 321
12.2 Delegated bargaining 329
12.3 Delegated competition 332
12.4 Delegated monitoring 335
12.5 Conclusion 342
Conclusion 344
The intermediation theory of the firm 345
Market microstructure and intermediation 348
Management implications 350
Public policy implications 351
References 353
Index 369