Information constraints are one of the main factors that keep markets separate. Overseas Chinese commerce has been portrayed as ''borderless''. The personal connections of many overseas Chinese business people have allowed otherwise disparate markets to be united. Those people function as middlemen facilitating trades and taking commissions in return. Recent advances in the Internet and e-commerce, however, have posed significant challenges to the overseas Chinese networks. By providing the technological means for truly ''borderless" trade, the Internet and e-commerce have slashed down the commissions for the middlemen.
Questions
a. Middleman commissions can be viewed as government taxes on producers or consumers. Illustrate how the presence of middlemen affects the operation of competitive markets.
b. Examine the effect of decreasing middleman commissions on the buyer and seller surpluses.