Welfare Implications in Intermediary Networks

We study the welfare implications of competing middlemen in a two-sided market, where goods are intermediated between providers and purchasers. In our model, each intermediary sets the quantities it intermediates, and the prices are a consequence of a Cournot competition. Our analysis shows that, unlike traditional markets, increasing competition is not always beneficial for market efficiency and that mergers can have an ambiguous effect on efficiency. We also analyze how the underlying network influences social welfare. We define a parameter called the intermediary capacity of the network and show how the price of anarchy depends on this parameter. These results suggest an intuitive and simple measure for the level of competitiveness in a networked market involving intermediaries.