MIDDLEMEN IN BILATERAL SEARCH MARKETS

This article examines the role of middlemen in bilateral search market s (e.g., employment agencies, real estate brokers). It is shown that t he middleman narrows the set of buyer (firm) and seller (worker) types who search; seller types with high valuations and buyer types with lo w valuations drop out of the search market and instead trade through t he middleman. The middleman also decreases the equilibrium search inte nsities of those agents who search. It is proven that the middleman im proves welfare if search is very costly and inefficient and decreases welfare if search is effectively costless and very efficient.