Intermediaries and Trade Efficiency

28 Pages Posted: 16 Aug 2005

See all articles by Bruce I. Carlin

Bruce I. Carlin

University of California, Los Angeles (UCLA) - Anderson School of Management

Date Written: August 8, 2005

Abstract

Bargaining with bilateral asymmetric information is generally not efficient. In this paper, I develop a theoretical model to show that firms can recapture trade efficiency and avoid this surplus loss by adding an intermediary to the trading mechanism. This increase in total surplus motivates firms to invest in distribution channels and reseller networks. In the model, the intermediary serves as a mechanism by which firms can commit to bilaterally favorable prices and coordinate their offers during bargaining. The expected gain to the intermediary is non-negative and the intermediary never suffers an ex-post loss. This result suggests that vertical integration between a producer and a distributor may destroy value, despite its use in removing double marginalization.

Keywords: intermediary, asymmetric information, trade efficiency

JEL Classification: L22, F13, D82, C78, C72

Suggested Citation

Carlin, Bruce I., Intermediaries and Trade Efficiency (August 8, 2005). Available at SSRN: https://ssrn.com/abstract=779485 or http://dx.doi.org/10.2139/ssrn.779485

Bruce I. Carlin (Contact Author)

University of California, Los Angeles (UCLA) - Anderson School of Management ( email )

110 Westwood Plaza
Los Angeles, CA 90095-1481
United States

Register to save articles to
your library

Register

Paper statistics

Downloads
124
Abstract Views
995
rank
225,980
PlumX Metrics