Download this Paper Open PDF in Browser

Asymmetric Information and Intermediation Chains

37 Pages Posted: 14 Mar 2013 Last revised: 25 Mar 2016

Vincent Glode

University of Pennsylvania - The Wharton School

Christian C. Opp

University of Pennsylvania - The Wharton School

Date Written: March 18, 2016

Abstract

We propose a parsimonious model of bilateral trade under asymmetric information to shed light on the prevalence of intermediation chains that stand between buyers and sellers in many decentralized markets. Our model features a classic problem in economics where an agent uses his market power to inefficiently screen a privately informed counterparty. Paradoxically, involving moderately informed intermediaries also endowed with market power can improve trade efficiency. Long intermediation chains in which each trader's information set is similar to those of his direct counterparties limit traders' incentives to post prices that reduce trade volume and jeopardize gains to trade.

Keywords: Intermediation Chains, Asymmetric Information, OTC Trading Networks, Monopoly Power, Double Marginalization

JEL Classification: G23, D82, D85, L10

Suggested Citation

Glode, Vincent and Opp, Christian C., Asymmetric Information and Intermediation Chains (March 18, 2016). American Economic Review, Forthcoming. Available at SSRN: https://ssrn.com/abstract=2232942 or http://dx.doi.org/10.2139/ssrn.2232942

Vincent Glode (Contact Author)

University of Pennsylvania - The Wharton School ( email )

3641 Locust Walk
Philadelphia, PA 19104-6365
United States

Christian Opp

University of Pennsylvania - The Wharton School ( email )

3641 Locust Walk
Philadelphia, PA 19104-6365
United States
215-573-3186 (Phone)

Paper statistics

Downloads
923
Rank
20,261
Abstract Views
3,617