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  3. American Economic Review
  4. September 2016
  5. Asymmetric Information and Intermediation Chains

American Economic Review

ISSN 0002-8282 (Print) | ISSN 1944-7981 (Online)

Asymmetric Information and Intermediation Chains

  • Vincent Glode
  • Christian Opp
American Economic Review
vol. 106, no. 9, September 2016
(pp. 2699–2721)
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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.

Citation

Glode, Vincent, and Christian Opp. 2016. "Asymmetric Information and Intermediation Chains." American Economic Review, 106 (9): 2699–2721. DOI: 10.1257/aer.20140662

Additional Materials

JEL Classification

  • D42 Market Structure, Pricing, and Design: Monopoly
  • D82 Asymmetric and Private Information; Mechanism Design
  • D85 Network Formation and Analysis: Theory
  • L12 Monopoly; Monopolization Strategies
  • L14 Transactional Relationships; Contracts and Reputation; Networks