13 - MS&E 241: ECONOMIC ANALYSIS Thomas A. Weber 13....

Info iconThis preview shows pages 1–6. Sign up to view the full content.

View Full Document Right Arrow Icon
MS&E 241: ECONOMIC ANALYSIS Thomas A. Weber 13. Markets and Intermediaries Winter 2009 Stanford University Copyright © 2009 T.A. Weber All Rights Reserved -2- MS&E-241-Winter-2009-TAW AGENDA What is an intermediary? Intermediary’s Value Proposition Key Concepts to Remember
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
-3- MS&E-241-Winter-2009-TAW WHAT IS AN INTERMEDIARY Definition . An intermediary offers intermediation services between two trading parties by acting as a conduit for goods and services offered by a supplier to a consumer. Typically the intermediary offers an added value to the transaction that is not available in a direct exchange between the two trading parties. -4- MS&E-241-Winter-2009-TAW INTERMEDIARIES ARE MARKET MAKERS … and Create Two-Sided Markets … Source: Spulber (1999) Supply Side Consumption Side
Background image of page 2
-5- MS&E-241-Winter-2009-TAW EXAMPLES OF INTERMEDIARIES There are plenty … -6- MS&E-241-Winter-2009-TAW DIRECT EXCHANGE Buyer Seller Price P Cost C Transaction Cost T = t B + t S t B t S U S = P – t S –C U B = V – t B –P Direct exchange takes place T C V
Background image of page 3

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
-7- MS&E-241-Winter-2009-TAW AGENDA What is an intermediary? Intermediary’s Value Proposition Key Concepts to Remember -8- MS&E-241-Winter-2009-TAW INTERMEDIATED EXCHANGE Buyer Seller Retail price R Cost C Intermediation Cost K U S = W – C U B = V – R Intermediated exchange takes place K C V Wholesale price W Inter- mediary and K T
Background image of page 4
-9- MS&E-241-Winter-2009-TAW REASONS FOR LOWER TRANSACTION COSTS Intermediary trades larger volume Æ Economies of scale Commitment power Æ Intermediary can guarantee prices Longevity of Intermediary Æ Reputation Information aggregation Æ Intermediary knows more Inventory Æ Intermediary can achieve immediacy by keeping an inventory -10- MS&E-241-Winter-2009-TAW MONOPOLISTIC INTERMEDIARY The profit-maximizing prices (R,W) satisfy V – R = (V – C – T)/2 = W – C The intermediary’s “markup” is therefore R – W = T.
Background image of page 5

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Image of page 6
This is the end of the preview. Sign up to access the rest of the document.

Page1 / 12

13 - MS&E 241: ECONOMIC ANALYSIS Thomas A. Weber 13....

This preview shows document pages 1 - 6. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online