Middlemen carry the market to equilibrium: start at the no-trade wall, then drag the cost wedge tighter
Sam’s gain
Joe’s gain
the arranging costs
0.2
0.4
0.6
0.8
1.0
1.2
1.4
1.6
1.8
0.2
0.4
0.6
0.8
1.0
1.2
1.4
1.6
1.8
Granola bars per bottle
0
10
20
30
40
40
30
20
10
0
Sam →
← Joe
Bottles of water — 40 in all
with free trading,
30 bottles move
Sam’s personal worth
Joe’s personal worth
1.00 · Sam’s full price
0.20 · Joe’s net
Costs 0.80 a bottle: 0 bottles trade · each side gains 0.00 bars · 0.00 bars go to arranging
The cost of arranging swallows the whole worth gap — no one trades; both men sit at 20 bottles
Start where costs are so high that no one trades. Drag the wedge tighter — cheaper and cheaper middlemen —
and watch trade carry both men toward the crossing (arrow keys work too). Try 0.40, then 0.20, then zero.
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