Intermediation and Competition in Search Markets: An Empirical Case Study

Abstract

This paper argues that intermediaries in decentralized markets can affect buyer welfare both directly, by reducing the expenses of buyers with high search cost but also indirectly, through a search-externality that affects the prices paid by those buyers that do not use intermediaries. These two effects are investigated in New York City’s trade waste market, where buyers can either search and haggle by themselves or through a waste broker. Combining elements from the empirical search and procurement-auction literatures, I construct and estimate a model for such a decentralized market. Results from the model show that intermediaries improve welfare and benefit buyers in both the broker and the search market.

Keywords: Search Cost, Intermediation, Decentralized Markets

JEL Classification: L13, D43, D44, L97, L81