Wednesday, November 4, 2020

Review of The Middleman Economy: How Brokers, Agents, Dealers, and Everyday Matchmakers Create Value and Profit by Marina Krakovsky

This review was written by Eugene Kernes

Book can be found in:
Genre = Economics
Intriguing Connections = Learning Economics: Basic to Advanced

Elaborate Description

This book takes a deep look into the value that middleman provide. To be useful, middleman must provide value to both the sellers and the buyers in the exchange. Thing is, middleman need to sustain their trade as well, that means taking a share of the profit from the exchange. When middleman do their job right, they provide more value than their expense, benefiting all those involved. The bad reputation of middleman comes about when they cost more than the value they provide.

Krakovsky provides six different ways that middleman can provide value when they act as the Bridge, Certifier, Enforces, Risk Bearer, Concierge, and Insulator. The six value providing activities are not mutually exclusive. Each is needed and sometimes required in many different situations. Each has the power to provide massive value to society. Each role increases efficiency by allowing for less idle capacity, reducing time spend, or reducing stress for either party. But should the middleman take more profit than the value the service provides, it will be easy to cut the middleman out of the exchange.

Being the bridge means reducing the transaction costs between people. Many markets were not sustainable due to high costs, the middleman can bridge the gap by reducing those costs. The certifier helps by sorting through information and providing the appropriate value to the information. Without expertise, it is difficult to discern the value of information, while the certifier has the expertise to know the proper value. Enforces make sure that all parties to an exchange play by the rules. By punishing those that break the rules, the enforcer can make certain that foul play is not costless. The risk bearer can handle the risky side of the business more than any individual can. Having the ability to diversify revenue streams, the risk bearer can survive when losing money from some sources due to profits from others. A concierge can tailor information to best fit the client. Having access to the same information does not mean the same value can be extracted by different people, the concierge listens to the client and helps them find the appropriate thing for them. The insulator takes away the pressure of being seen inappropriate. Representing oneself has different social connotation then representing someone else, the insulator levels the power relationship between the parties without damaging either parties’ reputation.

The focus of the book is when the middleman provides more value than the expense, while sparse information in given to why some middleman fail. In the introductory chapter, the author provides the potential view of middleman that depend on their ability to get things done to the value they extract. The major problem is the insufficient explanation of why some middleman are seen in the negative relative to the values they are meant to provide. Some sporadic examples are provided when middleman is notorious for the poor job done, but they lack depth. Understanding what makes a bad middleman in detail would have helped a lot in explaining what mistakes not to make. There is a lot of value in knowing what not do to.

Extremely well written and research from different fields are used such as economics, game theory, psychology, and sociology. The technical parts are fun to read. Even though examples of middleman doing a poor job are pervasive, a chapter or two on the failures of the middleman would have provided a lot of value.

Book Details

Edition ISBN:  9781137530196
Pages to read:   199
Publication:     2015
1st Edition:      2015
Format:            Hardcover

Ratings out of 5:
Readability    5
Content          5
Overall           5