The Middleman & The Online Product Market

Economics Expert on Product Market (Part 2)

Every business transaction has a cost. The combination of these costs from all sides of a transaction creates “trading friction” in a product market. As a result, middlemen are uniquely positioned to reduce costs for buyers and sellers in order to reduce this friction.

Middlemen who are doing their jobs right are making transactions happen more quickly and simplify processes. Despite the fact that the internet has the lowest transaction costs of any platform, middlemen still play a vital role in delivering products and services. In addition, the internet has lowered transaction costs for middlemen more than anyone else.

The popularity of online product markets is an example of how middlemen have become more common on the internet. For example, Amazon and eBay would not exist without the internet. These companies represent two of the largest “middlemen” in history and being online makes their massive scale possible.

Furthermore, the newest online middlemen like AirBnb and Uber are also able to lower transaction costs for their users. In many cases, they provide a service that would not exist without them. For example, if you are traveling abroad, you would not rent a room from a stranger. With middlemen, you have a trusted service in place to ensure the quality of the space you are renting.

Click here for Part 1

Click here for Part 3