Abstract

Distribution of goods often involves multiple intermediaries sequentially buying and reselling. We show that multi-intermediary chains arise in response to internal economies of scale in trade costs, and that this can account for patterns in firm size and prices we document in original data on consumer goods in Nigeria. Interventions that shorten chains involve a fundamental welfare trade-off: they lower marginal cost but also the number of sellers, reducing competition, product availability, and access to retailers. We embed this general insight in a quantifiable model, and find that for apparel in Nigeria, cutting out middlemen often harms more remote consumers.

Reference

Meredith Startz (Dartmouth College), “Cutting out the middleman: The structure of chains of intermediation”, Behavior, Institutions, and Development Seminar, May 12, 2022, 11:00–12:30, room Auditorium 4.