Finance Papers

Document Type

Journal Article

Date of this Version

9-2016

Publication Source

American Economic Review

Volume

106

Issue

9

Start Page

2699

Last Page

2721

DOI

10.1257/aer.20140662

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.

Copyright/Permission Statement

Copyright © 2016 by the American Economic Association.Glode, Vincent, and Christian Opp. 2016. "Asymmetric Information and Intermediation Chains." American Economic Review, 106(9): 2699-2721.

Embargo Date

9-2016

Share

COinS
 

Date Posted: 27 November 2017

This document has been peer reviewed.