Events

Dr. Meredith Startz
Assistant Professor
School of Economics
Dartmouth College

Abstract:

Distribution of goods often involves chains of multiple intermediaries engaged in sequential buying and reselling. Common wisdom holds that connecting producers and consumers more directly will benefit them – we show that this can be, but is not necessarily the case, even when middlemen hold market power. Multi-intermediary chains arise when there are internal economies of scale in trade costs, suggesting consumers in developing countries are more likely to be served via long chains. Equilibrium chain structures are not generally efficient. There is a fundamental welfare trade-off between costs and entry in destination markets, as shorter chains involve lower marginal cost, which benefits consumers, but also lower entry, which can lead to lower product availability, fewer sellers, and higher markups. The proposed mechanism is simple, but can account for empirical patterns in wholesale firm size, prices and markups that we document using original survey data on imported consumer goods in Nigeria. We estimate a structural version of the model for distribution of Chinese-made apparel in Nigeria, and describe endogenous restructuring of chains and the resulting impacts on consumer welfare in response to counterfactual changes in regulation, e-commerce technologies, and transport infrastructure. We find that cutting out middlemen has heterogenous impacts across locations, but often harms more remote consumers.

This is a joint seminar organized by HKU, CUHK, City U, HKUST and Lingnan U.

Please contact Xiameng PAN at xmpan@connect.hku.hk for registration.