The Economics Of Information Intermediaries

Author : Jongwon Shin
Publisher :
ISBN 13 :
Total Pages : 0 pages
Book Rating : 4.:/5 (137 download)

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Download or read book The Role of Intermediaries in Markets written by Jongwon Shin and published by . This book was released on 2022 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: Many economic transactions and social interactions that take place among groups of agents involve services provided by intermediaries whose roles are critical in the economy. For a better understanding of intermediaries, many works in economic literature have been devoted to the theoretical development of a model of intermediation in various market settings. In particular, the literature on market intermediation has addressed various issues by attempting to answer the following two questions :(1) Why and how do intermediaries exist?(2) What intermediaries contribute to the economy?The key conclusion of the literature is that intermediaries exist in the market because they enhance efficiency by improving on direct exchange. With full information and a costless search, direct search between consumers generally yields an efficient outcome with homogenous products. The direct exchange between consumers may require central coordination in a market with differentiated products, even with full information and a costless search. When buyers and sellers have incomplete information about the other side of the market and the search is costly, intermediaries can improve the efficiency of economic transactions. Intermediaries offer potential efficiencies by offering communication services and centralizing the matching of buyers and sellers. Also, they offer price signals, aggregate demand and supplies, and provide central places of exchange.In other words, intermediaries reduce inherent inefficiencies of the market and enhance net gains from market interactions by offering various transaction models. When doing so, intermediaries are in a better position to make connections than other economic agents (e.g., buyers and sellers), and consequently use their bridging positions in a number of ways. The role of intermediaries differs across markets, and therefore the distinctions among various types of intermediaries are important.Indeed, there are many types of intermediaries around the world. For example, an intermediary acts as a dealer in markets. The intermediary simply buys and resells a product, without adding any service to the transaction. Even with this simple activity, the intermediary may add value for some market participants. Another type of intermediary is called platform operators. The role of platform operators differs from that of dealers since they do not engage in direct sales with buyers and sellers. Instead, the platform operator provides a place where buyers and sellers are able to interact. Often, intermediaries play an important role in alleviating asymmetric problems between sellers and buyers. In some markets, the intermediary enhances efficiency by revealing information about a product's quality.In this paper, we discuss the role of intermediaries in various market contexts by using simple models from the intermediation literature. In particular, in section 2, we discuss the dealer role of an intermediary in a search market. And, in section 3, we review the certifier role of an intermediary in a market with asymmetric information. Finally, in section 4, we conclude.