Competition between Intermediated and Direct Trade and the Timing of Disintermediation

John Fingleton

No 1539, CEPR Discussion Papers from Centre for Economic Policy Research

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: Disintermediation; Intermediation; Middleman (search for similar items in EconPapers)
JEL-codes: C78 D49 (search for similar items in EconPapers)
Date: 1996-12
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