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Intermediation and Resale in Networks

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  • Mihai Manea

Abstract

I study intermediation via sequential bilateral bargaining in markets with a network structure. A partition of the network into layers captures intermediation power. Competition governs trade within layers, and hold-ups generate intermediation rents in transactions between layers. Each trader's intermediation power reflects the competition among intermediation chains as measured by the number of layers separating the trader from buyers. Trade does not maximize welfare or minimize intermediation. The interplay between competition and hold-ups determines the level of inefficiency. Eliminating middlemen or transferring intermediation costs downstream increases seller profits. Downstream and upstream competition respond oppositely to either horizontal or vertical integration.

Suggested Citation

  • Mihai Manea, 2018. "Intermediation and Resale in Networks," Journal of Political Economy, University of Chicago Press, vol. 126(3), pages 1250-1301.
    • Handle: RePEc:ucp:jpolec:doi:10.1086/697205
    DOI: 10.1086/697205
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    Cited by:

    1. Martin Gaynor & Kate Ho & Robert J. Town, 2015. "The Industrial Organization of Health-Care Markets," Journal of Economic Literature, American Economic Association, vol. 53(2), pages 235-284, June.
    2. Santiago R. Balseiro & Ozan Candogan & Huseyin Gurkan, 2021. "Multistage Intermediation in Display Advertising," Manufacturing & Service Operations Management, INFORMS, vol. 23(3), pages 714-730, May.
    3. Li, Peixuan & Dang, Chuangyin & Herings, P.J.J., 2023. "Computing Perfect Stationary Equilibria in Stochastic Games," Discussion Paper 2023-006, Tilburg University, Center for Economic Research.
    4. Howard Smith & Walter Beckert & Yuya Takahashi, 2020. "Competition in a spatially-differentiated product market with negotiated prices," Economics Series Working Papers 921, University of Oxford, Department of Economics.
    5. Allain, Marie-Laure & Avignon, Rémi & Chambolle, Claire, 2020. "Purchasing alliances and product variety," International Journal of Industrial Organization, Elsevier, vol. 73(C).
    6. Jean-Edouard Colliard & Gabrielle Demange, 2021. "Asset Dissemination Through Dealer Markets," Management Science, INFORMS, vol. 67(10), pages 6211-6234, October.
    7. Shixun Wang & Lihong Yang, 2022. "The Network Structure of Innovation Networks," Networks and Spatial Economics, Springer, vol. 22(1), pages 65-96, March.
    8. Choi, S. & Goyal, S. & Moisan, F., 2020. "Brokerage Rents and Intermediation Networks," Cambridge Working Papers in Economics 2005, Faculty of Economics, University of Cambridge.
    9. Ana Babus & Péter Kondor, 2018. "Trading and Information Diffusion in Over‐the‐Counter Markets," Econometrica, Econometric Society, vol. 86(5), pages 1727-1769, September.
    10. Kate Ho & Robin S. Lee, 2019. "Equilibrium Provider Networks: Bargaining and Exclusion in Health Care Markets," American Economic Review, American Economic Association, vol. 109(2), pages 473-522, February.
    11. Andrea Galeotti & Benjamin Golub & Sanjeev Goyal & Eduard Talam`as & Omer Tamuz, 2021. "Taxes and Market Power: A Principal Components Approach," Papers 2112.08153, arXiv.org, revised Jun 2022.
    12. Chian Jones Ritten & Christopher Bastian & Owen Phillips, 2021. "The relative effectiveness of law enforcement policies aimed at reducing illegal trade: Evidence from laboratory markets," PLOS ONE, Public Library of Science, vol. 16(11), pages 1-20, November.
    13. Chen, Yi-Fan & Peng, Shin-Kun & Tsai, Tsung-Sheng, 2021. "The market structures in trade intermediation with heterogeneous manufacturing firms," International Review of Economics & Finance, Elsevier, vol. 75(C), pages 501-523.
    14. Dilmé, Francesc, 2023. "Bargaining in small dynamic markets," Journal of Economic Theory, Elsevier, vol. 207(C).
    15. John Birge & Ozan Candogan & Hongfan Chen & Daniela Saban, 2021. "Optimal Commissions and Subscriptions in Networked Markets," Manufacturing & Service Operations Management, INFORMS, vol. 23(3), pages 569-588, May.
    16. Weill, Pierre-Olivier, 2020. "The search theory of OTC markets," CEPR Discussion Papers 14847, C.E.P.R. Discussion Papers.
    17. Choi, S. & Goyal, G. & Moisan, F., 2020. "Large Scale Experiments on Networks: A New Platform with Applications," Cambridge Working Papers in Economics 2063, Faculty of Economics, University of Cambridge.
    18. Han, Lining & Juarez, Ruben, 2018. "Free intermediation in resource transmission," Games and Economic Behavior, Elsevier, vol. 111(C), pages 75-84.
    19. S. Nageeb Ali & Ayal Chen-Zion & Erik Lillethun, 2020. "Reselling Information," Papers 2004.01788, arXiv.org, revised Dec 2022.
    20. Kariv, Shachar & Kotowski, Maciej H. & Leister, C. Matthew, 2018. "Liquidity risk in sequential trading networks," Games and Economic Behavior, Elsevier, vol. 109(C), pages 565-581.
    21. Konrad Menzel, 2021. "Central Limit Theory for Models of Strategic Network Formation," Papers 2111.01678, arXiv.org.
    22. Smith, Howard & Beckert, Walter & Takahashi, Yuya, 2020. "Competition in a spatially-differentiated product market with negotiated prices," CEPR Discussion Papers 15379, C.E.P.R. Discussion Papers.
    23. Balbuzanov, Ivan & Kotowski, Maciej, 2019. "The Property Rights Theory of Production Networks," Working Paper Series rwp19-033, Harvard University, John F. Kennedy School of Government.
    24. Levin, Mark (Левин, Марк) & Shilova, Nadezhda V. (Шилова, Надежда), 2016. "Rentseeking Behavior in Systems with a Complex Structure [Рентоориентированное Поведение В Системах Со Сложной Структурой]," Working Papers 2272, Russian Presidential Academy of National Economy and Public Administration.
    25. Thành Nguyen & Karthik Kannan, 2021. "Welfare Implications in Intermediary Networks," Information Systems Research, INFORMS, vol. 32(2), pages 378-393, June.

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