Trade through Endogenous Intermediaries∗

We propose an intermediation core for an economy that is explicit in how traders organize themselves into trade cooperatives (intermediaries) and how trade between them gets carried out. The intermediation core allocations are closely related to equilibrium allocations of a non-cooperative intermediation game in Townsend (1983). We show that the intermediation core contains all subgame-perfect equilibrium allocations of the intermediation game, similar to the inclusion of competitive equilibrium allocations in the core usually studied. We identify intermediation core allocations that are also subgame-perfect equilibrium allocations of the intermediation game in terms of the supporting intermediary structures. These results help to characterize subgame-perfect equilibrium allocations of the intermediation game and to analyze their welfare and stability properties.