Working Paper: CEPR ID: DP1538
Authors: John Fingleton
Abstract: This paper examines how the introduction of a direct trade alternative for buyers and sellers affects competition among middlemen. Direct trade makes middlemen?s supply and demand functions depend on both bid and ask prices, a feature we term interdependence. A simple model is used to illustrate this phenomenon and to show how interdependence effects depend on the efficiency of direct trade. We find that direct trade does not alter Stahl?s (1988) finding that middlemen may ?corner? the market. This occurs under different conditions and with smaller distortions if there is an active direct trade possibility for sellers and buyers, however.
Keywords: middlemen; intermediation; monopolization
JEL Codes: D4; G2; L1
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Direct trade efficiency (F19) | Middlemen competition (D40) |
| Direct trade presence (F19) | Middlemen's supply and demand interdependence (D40) |
| Direct trade efficiency (F19) | Market distortions (D39) |
| Direct trade efficiency (F19) | Competitive dynamics among middlemen (D40) |
| Direct trade frictions (F19) | Pricing and market behavior distortions (D49) |