Matching, search and intermediation with two-sided heterogeneity

This paper analyzes the role played by intermediation in a decentralized market, where trade is carried out through bilateral bargaining, and where the bargaining outcome depends on the process of search for suitable trading partners. To this purpose, a monopolistic intermediary is embedded in a dynamic model of random-matching and two-sided search with heterogeneous agents. It is shown that intermediation might speed up the matching process and might induce separation of the agents’ types, thus enhancing sorting efficiency with respect to a pure search market, where sorting externalities cause multiplicity of equilibria to arise and determine inefficient matching outcomes. Nonetheless, intermediation might also introduce frictions that do not exist in a decentralized market operating in isolation, and this impairs efficiency.