Competition Among Middlemen When Buyers and Sellers Can Trade Directly

John Fingleton

Journal of Industrial Economics, 1997, vol. 45, issue 4, 405-427

Abstract: This paper examines competition among middlemen when sellers and buyers can trade directly. Direct trade alters the supply and demand facing the middlemen, making them interdependent, and reduces the market power of intermediaries. However, it does not alter the Stahl [1988] result that middlemen may have an incentive to “corner” the market if demand is inelastic. The model is applied to market making in financial markets, vertical integration in goods markets and to the question of bypass in utilities. This discussion suggests that cornering is most likely in markets for essential inputs and that it may enable seller collusion.

Date: 1997
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