Book contents
- Frontmatter
- Contents
- List of figures
- List of tables
- List of cases
- Preface
- Part I Getting started
- Part II Market power
- Part III Sources of market power
- Part IV Pricing strategies and market segmentation
- Part V Product quality and information
- Part VI Theory of competition policy
- Part VII R&D and intellectual property
- Part VIII Networks, standards and systems
- Part IX Market intermediation
- 22 Markets with intermediated goods
- 23 Information and reputation in intermediated product markets
- Appendices
- Index
22 - Markets with intermediated goods
from Part IX - Market intermediation
- Frontmatter
- Contents
- List of figures
- List of tables
- List of cases
- Preface
- Part I Getting started
- Part II Market power
- Part III Sources of market power
- Part IV Pricing strategies and market segmentation
- Part V Product quality and information
- Part VI Theory of competition policy
- Part VII R&D and intellectual property
- Part VIII Networks, standards and systems
- Part IX Market intermediation
- 22 Markets with intermediated goods
- 23 Information and reputation in intermediated product markets
- Appendices
- Index
Summary
In this chapter, we consider the two roles of intermediaries that concern the trade of goods and services: the role of a dealer and the role of a platform operator.
Section 22.1 focuses on the dealer role in its simplest form: the intermediary buys and resells a product, without adding any service to the transaction. Compared to a situation where buyers and sellers interact on a decentralized market, we show that the intermediary may add value for some market participants by this simple buy and resell activity. As we will argue, the intuition for this result is that intermediation allows for a valuable self-selection of types when buyers and sellers are affected by the type of their matching partner. Intermediaries can thus find profitable opportunities to operate centralized exchanges.
What is the most profitable form of centralized exchange: buying and reselling the goods or just providing buyers and sellers with an opportunity to meet? That is, does the intermediary prefer to act as a dealer or as a platform operator who only taxes trade? We show that the picture is mixed. Decentralizing pricing leads to positive and negative effects for the intermediary.
In Section 22.2, we examine matching environments. Intermediaries providing matching services can add value by internalizing two types of externalities. First, indirect network externalities are present when agents in one group value the matching services of an intermediary all the more that the participation of the other group is large, because that increases their chances of finding their match.
- Type
- Chapter
- Information
- Industrial OrganizationMarkets and Strategies, pp. 613 - 646Publisher: Cambridge University PressPrint publication year: 2010