Competition between Intermediated and Direct Trade and the Timing of Disintermediation

John Fingleton

Oxford Economic Papers, 1997, vol. 49, issue 4, 543-56

Abstract: This paper analyzes how intermediation by a middleman who buys from sellers and sells to buyers is affected if direct trade between buyers and sellers becomes possible. Without coordination among sellers and buyers, disintermediation may not occur when it would be welfare-improving. With such coordination, disintermediation may occur too early. If direct trade is active, the supply and demand for intermediation become interdependent: an increase in the bid price thus increases both supply and demand. This process of interdependence by which the two trade mechanisms compete for trade is a feature of competing markets generally. Copyright 1997 by Royal Economic Society.

Date: 1997
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