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journal article
Middlemen Margins and GlobalizationAmerican Economic Journal: Microeconomics
Vol. 5, No. 4 (November 2013)
, pp. 81-119 (39 pages)
Published By: American Economic Association
//www.jstor.org/stable/43189642
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Abstract
We study a competitive theory of middlemen with brand-name reputations necessary to overcome product quality moral hazard problems. Agents with heterogeneous abilities sort into different sectors and occupations. Middleman margins do not equalize across sectors if production of different goods are differentially prone to moral hazard, generating endogenous mobility barriers. We embed the model in a setting of North-South trade, and explore the distributive implications of trade liberalization. With large intersectoral moral hazard differences, results similar to those of Ricardo-Viner specific-factor models obtain, whereby southern inequality increases. Otherwise, opposite (i.e., Stolper-Samuelson) results obtain.
Journal Information
American Economic Journal: Microeconomics publishes papers focusing on microeconomic theory, industrial organization and the microeconomic aspects of international trade, political economy, and finance. The journal publishes theoretical work as well as both empirical and experimental work with a theoretical framework.
Publisher Information
Once composed primarily of college and university professors in economics, the American Economic Association (AEA) now attracts 20,000+ members from academe, business, government, and consulting groups within diverse disciplines from multi-cultural backgrounds. All are professionals or graduate-level students dedicated to economics research and teaching.
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1. Domestic agent usually takes possession of the goods, while foreign agents do not 2. Domestic agent has authority to set prices, foreign agent does not 3. Domestic agent does some promotion and selling 4. Domestic agent
occasionally extends credits The functions of the domestic and foreign middlemen are quite similar in many areas, but there are certain differences. First, the domestic agent usually takes possession of the goods, whereas the foreign agent does not. In the area of setting prices, the domestic agent has the authority to do so, while his foreign counterpart does not. In what ways and to what extent do the functions of domestic middlemen differ from those of their foreign competitors?
Both types of domestic middlemen arrange for the shipping of goods, but the foreign middlemen do not. Two other differences exist between foreign and domestic agents. The domestic agent does some promotion and selling, and occasionally extends credit. On the other hand, foreign agents usually do not participate in these activities.
Learn More :
Advantages for companies:
- With small international sales volume
- Inexperienced with foreign markets
- Not wanting to become immediately involved with international
marketing
- Wanting to sell abroad with minimal financial and management
commitment
Disadvantage:
- Limited control over the entire distribution process
Home-Country Middlemen
Global retailers
Export management companies (EMC):
- Functions as low-cost, independent
marketing
department
Advantages
Company's minimum investment to get into international
markets
No commitment of company personnel
Trading companies:
- Accumulate, transport, and distribute goods from many
countries
U.S. export trading companies
- Composed of producers of similar products
Complementary marketers (piggybacking):
- Companies with marketing facilities take on additional
lines for international distribution
Manufacturer's
export agent (MEA):
- Individual agent middleman or an agent middleman firm
providing a selling service for manufacturers