Intermediaries in Decentralized Markets: Evidence from Used-Car Transactions

We develop and estimate a spatial search-and-bargaining model to study the role of intermediaries and spatial frictions using data from the used-car market. We find that dealers earn price premiums by leveraging three key advantages: selective acquisition of higher-quality cars, superior matching efficiency, and greater bargaining power. Counterfactual simulations reveal that selective intermediation and spatial segmentation significantly affect market efficiency and consumer welfare. While dealers extract more surplus per transaction than sellers, policies reducing dealers' advantages increase search frictions and lower overall welfare. Counterintuitively, reducing spatial frictions harms consumers by shifting trade to less efficient private-seller channels.