Discussion paper

DP17619 Market Structure of Intermediation

Skilled intermediaries can represent multiple investors, generating economies of scale in screening costs. However, locating competent intermediaries recreates the screening friction. I provide a framework to study the structure of intermediation chain, focusing on its length, sector size, skill distribution, and effort choice. Counterintuitively, efficient intermediation does not rely on intermediaries being more skilled. Longer chains enhance welfare and reduce the market power of the intermediary sector. Moreover, self-selection of intermediaries into two heterogeneous layers can lead to greater efficiency compared to structures with homogeneous qualities across layers. These findings have implications for delegated asset management industry.


Zhong, H (2022), ‘DP17619 Market Structure of Intermediation‘, CEPR Discussion Paper No. 17619. CEPR Press, Paris & London. https://cepr.org/publications/dp17619