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Competition Among Middlemen When Buyers and Sellers Can Trade Directly

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  • John Fingleton

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.

Suggested Citation

  • John Fingleton, 1997. "Competition Among Middlemen When Buyers and Sellers Can Trade Directly," Journal of Industrial Economics, Wiley Blackwell, vol. 45(4), pages 405-427, December.
    • Handle: RePEc:bla:jindec:v:45:y:1997:i:4:p:405-427
    DOI: 10.1111/1467-6451.00056
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    Cited by:

    1. Clerides, Sofronis & Nearchou, Paris & Pashardes, Panos, 2008. "Intermediaries as quality assessors: Tour operators in the travel industry," International Journal of Industrial Organization, Elsevier, vol. 26(1), pages 372-392, January.
    2. Galeotti, Andrea & Moraga-González, José Luis, 2009. "Platform intermediation in a market for differentiated products," European Economic Review, Elsevier, vol. 53(4), pages 417-428, May.
    3. Galeotti, Andrea & Moraga-González, José Luis, 2009. "Platform intermediation in a market for differentiated products," European Economic Review, Elsevier, vol. 53(4), pages 417-428, May.
    4. Klaus Kultti & Tuomas Takalo & Oskari Vähämaa, 2021. "Intermediation in a directed search model," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 30(2), pages 456-471, May.
    5. Martimort, David & Pouyet, Jérôme, 2020. "Downstream mergers in vertically related markets with capacity constraints," International Journal of Industrial Organization, Elsevier, vol. 72(C).
    6. Sofronis Clerides & Paris Nearchou & Panos Pashardes, 2004. "Intermediaries as Quality Assessors in Markets with Asymmetric," University of Cyprus Working Papers in Economics 3-2004, University of Cyprus Department of Economics.
    7. Pieter Gautier & Bo Hu & Makoto Watanabe, 2023. "Marketmaking Middlemen," RAND Journal of Economics, RAND Corporation, vol. 54(1), pages 83-103, March.
    8. Polanski Arnold & Cardona Daniel, 2012. "Multilevel Mediation in Symmetric Trees," Review of Network Economics, De Gruyter, vol. 11(3), pages 1-23, September.
    9. Simon Loertscher, 2005. "Market making oligopoly," Diskussionsschriften dp0512, Universitaet Bern, Departement Volkswirtschaft.
    10. Tara Mitchell, 2014. "Is Knowledge Power? Competition and Information in Agricultural Markets," The Institute for International Integration Studies Discussion Paper Series iiisdp456, IIIS.
    11. De Fraja, Gianni & Sákovics, József, 2012. "Exclusive nightclubs and lonely hearts columns: Non-monotone participation in optional intermediation," Journal of Economic Behavior & Organization, Elsevier, vol. 84(2), pages 618-632.
    12. Jiandong Ju & Scott C. Linn & Zhen Zhu, 2010. "Middlemen and Oligopolistic Market Makers," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 19(1), pages 1-23, March.
    13. Ata Atay & Eric Bahel & Tamás Solymosi, 2023. "Matching markets with middlemen under transferable utility," Annals of Operations Research, Springer, vol. 322(2), pages 539-563, March.
    14. Terrence Hendershott & Jie Zhang, 2006. "A Model of Direct and Intermediated Sales," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 15(2), pages 279-316, June.
    15. Simon Loertscher, 2007. "Horizontally Differentiated Market Makers," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 16(4), pages 793-825, December.
    16. Simon Loertscher, 2008. "Market Making Oligopoly," Journal of Industrial Economics, Wiley Blackwell, vol. 56(2), pages 263-289, June.
    17. Domenico Colucci & Vincenzo Valori, 2008. "Asset Price Dynamics When Behavioural Heterogeneity Varies," Computational Economics, Springer;Society for Computational Economics, vol. 32(1), pages 3-20, September.
    18. Pashardes, Panos & Clerides, Sofronis & Nearchou, Paris, 2005. "Intermediaries as Bundlers, Traders and Quality Assessors: The Case of UK Tour Operators," CEPR Discussion Papers 5038, C.E.P.R. Discussion Papers.

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