Market Microstructure: Intermediaries and the Theory of the Firm

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Cambridge University Press, Apr 13, 1999 - Business & Economics - 374 pages
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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 prinicipal-agent models.
  

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Contents

Market microstructure and intermediation
3
11 Who decides?
4
12 The circular flow of economic activity
7
13 Comparison with other economic theories of the firm
13
14 Intermediation in the US economy
21
15 Conclusion
26
Price setting and intermediation by firms
27
21 Price setting by intermediaries
28
73 Market clearing by intermediaries
182
74 Product quality and guaranties by experts
193
75 Conclusion
197
Appendix
198
Adverse selection in financial markets
203
81 Insiders liquidity traders and specialists
205
82 Competition between specialists
211
83 Informed intermediaries
215

22 Allocation under uncertainty and over time
34
23 Price adjustment by intermediaries
40
24 Inventories and market clearing by intermediaries
48
25 Conclusion
57
Competition and market equilibrium
59
Competition between intermediaries
61
31 Bertrand competition for inputs with homogeneous products
64
32 Bertrand price competition with differentiated products and purchases
68
33 Bertrand competition with switching costs
71
34 Bertrand competition when costs differ
74
35 Conclusion
79
Intermediation and general equilibrium
81
41 The neoclassical theory of the firm
83
42 Transaction costs and Walrasian equilibrium
94
43 Monopoly intermediation in general equilibrium
96
44 Monopolistic competition
104
45 Conclusion
106
Appendix
108
Intermediation versus decentralized trade
115
Matching and intermediation by firms
117
51 Intermediation versus a matching market
118
52 Costly intermediation
126
53 Intermediation with random matching
130
54 Intermediation and matching with production
134
55 Conclusion
137
Search and intermediation by firms
140
61 The market model
144
62 Market equilibrium
150
63 Comparison with Walrasian equilibrium and with monopoly
154
64 Market equilibrium with continual entry of consumers and suppliers
159
65 Conclusion
162
Appendix
164
Intermediation under asymmetric information
169
Adverse selection in product markets
171
71 Intermediated trade
173
72 Intermediated trade with production
179
84 Credit rationing by financial intermediaries
219
85 Conclusion
224
Intermediation and transactioncost theory
227
Transaction costs and the contractual theory of the firm
229
91 Transaction costs versus management costs
232
92 Transaction costs uncertainty and bounded rationality
236
93 Transaction costs and opportunism
245
94 Transaction costs and ownership
251
95 Conclusion
254
Transaction costs and the intermediation theory of the firm
256
101 Transaction costs and market microstructure
259
102 Intermediation and vertical integration
266
103 Intermediation and opportunism
276
104 Intermediation and ownership
281
105 Conclusion
285
Intermediation and agency theory
287
Agency and the organizational incentive theory of the firm
289
111 Vertical integration and the boundaries of the firm
291
112 Coordination of agents by the firm
299
113 Delegation of authority by owners to managers
306
114 Delegation of authority by managers to employees
314
115 Conclusion
317
Agency and the intermediation theory of the firm
319
121 What is an agent?
321
122 Delegated bargaining
329
123 Delegated competition
332
124 Delegated monitoring
335
125 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
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About the author (1999)

Daniel F. Spulber is the Elinor Hobbs Distinguished Professor of International Business and Professor of Management Strategy at the Kellogg School of Management, Northwestern University, where he has taught since 1990. He is also Professor of Law at the Northwestern University Law School (Courtesy). Professor Spulber is the Research Director for the Searle Center on Law, Regulation and Economic Growth. He served as the founding director of Kellogg's International Business and Markets Program. He is also the author of numerous books, including The Theory of the Firm: Microeconomics with Endogenous Entrepreneurs, Firms, Markets, and Organizations (Cambridge University Press, 2009); Economics and Management of Competitive Strategy (2009); Networks in Telecommunications: Economics and Law (with Christopher Yoo, Cambridge University Press, 2009); and Global Competitive Strategy (Cambridge University Press, 2007). He received his PhD in economics from Northwestern University.

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