Intermediary

An intermediary is an agent that links or communicates to two or more interested parties in making a transaction or negotiation.

The intermediary has the role of connecting two or more agents who have something to exchange or communicate with each other. He usually charges a fee or commission for his work.

The intermediary aims to facilitate transactions and / or negotiations between the parties. Generally, agents seek intermediaries because it is difficult or expensive for them to relate directly to each other.

Why there are intermediaries

The existence of intermediaries is mainly explained by the existence of costs in the search and negotiation process. Next, we explain some of those costs:

  • Search costs: Although there is a lot of information available it can be very expensive to order and prioritize it. Thus, for example, in the search for suppliers of different inputs , goods or services, it may require a lot of time and dedication.
  • Information asymmetries: Many times an intermediary is consulted when there is insufficient information on the quality of the goods or services. Thus, for example, in complex technological products (such as computers) the customer who wants to buy does not have the information to make the best purchase. Therefore, you may want to use an informed intermediary.
  • Specialization: Although sometimes it is possible to carry out a direct relationship without intermediaries, the effort would be costly and could divert the central objective of the agent. Thus, for example, a coffee machine producing company can try to sell directly to the end customer. However, this required effort in sales, marketing and other skills that could divert it from its production objective.
  • Communication channels have been broken: Mainly in legal cases, the intermediary figure helps to communicate to two parties that they have differences of opinion and have lost the ability to negotiate objectively.

Types of intermediaries

There are several types of intermediaries, then we explain the 3 main ones:

  • Commercial intermediaries:They are the link between suppliers and plaintiffs. They can be wholesalers and retailers and put the producers of goods and services in contact with intermediate and final customers. The intermediary merchant buys a good or service and resells it to a customer. Its profit consists of an intermediation margin that the client is willing to pay for its intermediation services.

Here for example we have the figure of the supermarket. It is a retail agent that buys from various producers to resell to the final consumer. The supermarket buys in bulk and resells at prices with a marketing margin. Customers go to the supermarket because it makes it easier for them to make purchases of various products in one place. Search and negotiation costs are saved and are therefore willing to pay a certain margin.

  • Financial intermediaries:They connect savers and investors . Financial intermediaries facilitate the connection of savers who wish to invest in certain projects and investors seeking financing. Financial intermediaries can also offer guarantees of compliance from both parties and a reduction of risk through the diversification of the project portfolio. For their work they also charge a margin of intermediation.

Here we have for example private banks , savings banks and insurers.

  • Legal intermediaries:These are intermediaries that help the parties reach an agreement. These intermediaries facilitate the negotiation between the parties and charge a fixed or commission for their services.

Here for example we have law firms. These mediate in cases of: separation of property by divorce, negotiation in a claim of an individual against a company or between companies.

Technology and intermediation

With the technological development, some of the costs of connecting and negotiating directly between the parties of a transaction have been reduced. This has led to a reduction in intermediation prices to greater competition in the market.

Thus, for example, in the case of the tourist market, nowadays the internet allows a simple and quick search of various accommodation alternatives, tickets, etc. This has come to reduce the commissions charged by travel agencies that have the role of intermediaries between the end customer (traveler) and the different providers of the requested services: airlines, hotels, taxis or restaurants.

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