Working Paper: CEPR ID: DP1539
Authors: John Fingleton
Abstract: This paper analyses competition between direct and intermediated trade. We show that middlemen?s supply and demand depend on both their bid and ask prices if sellers and buyers have the alternative of trading directly. Multiplicity also prevails. Direct trade does not constrain the market power of middlemen unless it is frictionless. Our results suggest that the timing of disintermediation is likely to be sub-optimal and have implications, more generally, for the analysis of many financial and food markets, where parallel or alternative trade channels for the same good exist.
Keywords: middlemen; intermediation; disintermediation
JEL Codes: C78; D49; O12
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| direct trade (F19) | welfare (I38) |
| direct trade (F19) | market power of middlemen (D40) |
| more sellers opting for direct trade (F19) | bargaining power of middlemen (D40) |
| middlemen (D40) | overall welfare (I31) |
| enabling direct trade (F19) | welfare (I38) |
| market power of middlemen (D40) | timing of disintermediation (G14) |
| coordination among sellers and buyers (L14) | optimal disintermediation (L14) |