Welfare Implications in Intermediary Networks

47 Pages Posted: 24 Apr 2019

See all articles by Thanh Nguyen

Thanh Nguyen

Purdue University - Krannert School of Management

Karthik Natarajan Kannan

Purdue University

Date Written: July 2018

Abstract

We study the welfare implications of competing middlemen in a two-sided market, where goods are intermediated between providers and purchasers. In our model, the intermediary sets the quantities to purchase and sell, and the prices are a consequence of a Cournot model. Our analysis shows that, unlike markets without intermediaries, mergers of intermediaries can substantially improve social and consumer welfare. We also analyze how the underlying network influences the social welfare outcomes. We define parameter wG as the width of the network G and show that the price of anarchy is at least 1 - 1/2wG + 1. These results suggest an intuitive and simple measure for the level of competitiveness in a networked market involving intermediaries.

Keywords: Economics of Information Systems, Price of Anarchy, Ad Networks

Suggested Citation

Nguyen, Thanh and Kannan, Karthik Natarajan, Welfare Implications in Intermediary Networks (July 2018). Available at SSRN: https://ssrn.com/abstract=2814569 or http://dx.doi.org/10.2139/ssrn.2814569

Thanh Nguyen

Purdue University - Krannert School of Management ( email )

1310 Krannert Building
West Lafayette, IN 47907-1310
United States

Karthik Natarajan Kannan (Contact Author)

Purdue University ( email )

Krannert School of Management
West Lafayette, IN 47907
United States

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