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Intermediaries in Decentralized Markets: Evidence from Used-Car Transactions

Author

Listed:
  • Fei Li
  • Charles Murry
  • Can Tian
  • Yiyi Zhou

Abstract

We develop and estimate a spatial search-and-bargaining model to study the role of intermediaries and spatial frictions using data from the used-car market. We find that dealers earn price premiums by leveraging three key advantages: selective acquisition of higher-quality cars, superior matching efficiency, and greater bargaining power. Counterfactual simulations reveal that selective intermediation and spatial segmentation significantly affect market efficiency and consumer welfare. While dealers extract more surplus per transaction than sellers, policies reducing dealers' advantages increase search frictions and lower overall welfare. Counterintuitively, reducing spatial frictions harms consumers by shifting trade to less efficient private-seller channels.

Suggested Citation

  • Fei Li & Charles Murry & Can Tian & Yiyi Zhou, 2025. "Intermediaries in Decentralized Markets: Evidence from Used-Car Transactions," NBER Working Papers 34136, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:34136
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    More about this item

    JEL classification:

    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • L15 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Information and Product Quality
    • L62 - Industrial Organization - - Industry Studies: Manufacturing - - - Automobiles; Other Transportation Equipment; Related Parts and Equipment

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