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, 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 w_G as the width of the network G and show that the price of anarchy is at least 1 - 1/2w_G + 1. These results suggest an intuitive and simple measure for the level of competitiveness in a networked market involving intermediaries