| The paper views price determination in disequilibrium as being determined by a market for access to trading partners, since in disequilibrium meeting a trading partner has value. The paper develops a model of price determination in which brokers enter a matching model of trade and bring about equilibrium. In the short run, the numbers of buyers and sellers and the price are taken as given. Buyers and sellers can meet in the free market (without brokers) to exchange the good according to a matching technology. It is shown that if a particular condition holds, brokers using the same matching technology as in the free market have a profit incentive to enter, and they eliminate the free market. In the short run equilibrium, brokers do not seek to change their fees or ratios of buyers to sellers, and buyers and sellers are indifferent among brokers. Broker behavior in the short run creates a market for access to trading partners. The broker fees from the short run equilibrium eliminate the congestion externalities generated by future entry of buyers or sellers. In the long run, the broker fees determined in the market for access to trading partners (the short run) change the price that prevails. Comparing costs with expected gains from entry, prospective buyers and sellers decide whether to participate in the market. The optimal entry decisions of buyers and sellers determine the long run equilibrium price and ratio of buyers to sellers. The broker behavior is shown to determine the dynamic behavior of prices, since the broker fee constitutes the change in prices. Price adjustment paths are then derived. The broker model is then compared with the Walrasian model for a single market. |