Asymmetric Information and Intermediation Chains

Vincent Glode and Christian Opp

American Economic Review, 2016, vol. 106, issue 9, 2699-2721

Abstract: We propose a parsimonious model of bilateral trade under asymmetric information to shed light on the prevalence of intermediation chains that stand between buyers and sellers in many decentralized markets. Our model features a classic problem in economics where an agent uses his market power to inefficiently screen a privately informed counterparty. Paradoxically, involving moderately informed intermediaries also endowed with market power can improve trade efficiency. Long intermediation chains in which each trader's information set is similar to those of his direct counterparties limit traders' incentives to post prices that reduce trade volume and jeopardize gains to trade.

JEL-codes: D42 D82 D85 L12 L14 (search for similar items in EconPapers)
Date: 2016
Note: DOI: 10.1257/aer.20140662
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Citations: View citations in EconPapers (36)

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