What Happens To Prices When Connected Communities Eliminate Middlemen

Before analyzing what happens when middlemen disappear, it is worth being precise about what they do.

The economic literature identifies several legitimate functions intermediaries perform:

Search and matching. Finding a buyer for your produce, a job for your labor, a house for your money, takes time and information. Intermediaries who specialize in this matching reduce transaction costs for both parties. A real estate agent who knows the local inventory and has relationships with potential buyers provides genuine search value.

Risk absorption. Grain traders who buy from farmers at harvest and sell to millers over months absorb the price risk that farmers cannot afford to hold. Factors who advance payment against future receivables absorb collection risk for manufacturers. This risk intermediation has real value.

Quality certification. Buyers who cannot evaluate quality rely on intermediaries who can. The wine merchant who selects from a thousand producers, the distributor who certifies food safety compliance, the staffing agency that screens applicants — these all perform quality certification that buyers couldn't efficiently perform themselves.

Credit provision. Many trade intermediaries provide implicit credit: advance payment to producers, extended terms to buyers, bridging between the rhythm of production and the rhythm of consumption. This credit intermediation is valuable.

Logistics. Moving goods from where they are to where they are needed is not costless. Intermediaries who specialize in logistics create real value.

The problem is that these legitimate functions are bundled, opaque, and protected by barriers to entry that allow intermediaries to charge for much more than they provide. The grain trader who performs all five functions deserves compensation. But the trader who has a regional monopoly — where farmers cannot sell to anyone else, cannot check prices elsewhere, cannot organize a cooperative — will charge for all five functions plus a monopoly premium, and the farmer has no recourse.

Intermediary power derives from three sources, and connected communities undermine all three:

Information monopoly. The intermediary knows what you don't. They know the prices buyers pay, the quality standards buyers require, the logistics channels that work, the credit terms that are available. Their information advantage is the foundation of their margin. When communities share information — when farmers share price data, when workers share salary information, when patients share drug pricing — this foundation erodes.

Relationship monopoly. The intermediary controls access to buyers or sellers you can't reach yourself. The export trader has the relationships with foreign buyers. The headhunter has the relationships with hiring managers. The insurance broker has the relationships with underwriters. When direct-connection infrastructure — platforms, cooperatives, professional networks — allows producers and consumers to find each other, the relationship monopoly erodes.

Infrastructure monopoly. The intermediary owns or controls the physical or institutional infrastructure that transactions require. The commodity exchange that sets prices and guarantees contracts. The distribution network that moves goods. The financial system that clears payments. These infrastructure monopolies are hardest to disrupt and most important to disrupt.

The agricultural sector provides the richest evidence base because it has been extensively studied, because agricultural intermediaries are often egregiously extractive, and because the disruption is ongoing.

India's e-Choupal system. In 2000, ITC Limited (a major Indian conglomerate) set up internet kiosks in rural villages across central India — the e-Choupal network — providing farmers with real-time commodity prices, weather forecasts, and direct procurement options. Before e-Choupal, farmers sold soy through mandis (regulated markets) where commission agents (arhatiyas) controlled price discovery, weighed produce on unreliable scales, and extracted 5 to 10 percent margins. Within a few years of e-Choupal expansion, studies documented soybean farm-gate prices rising 5 to 15 percent in covered areas, with ITC capturing some of the intermediary margin and sharing some with farmers. The arhatiyas lost business. The farmers gained.

Kenya's M-Farm and similar platforms. Across East Africa, mobile agricultural information services allowed smallholder farmers to access commodity prices, input prices, and — eventually — to link directly with buyers. Studies documented that farmers with price information reduced their reliance on local traders (who had information advantages) and sold more often at higher prices in more competitive markets. A 2012 World Bank review estimated that mobile agriculture services across Africa were increasing farm incomes by 10 to 40 percent in covered areas.

The APMC reform debates in India. India's Agricultural Produce Market Committee laws historically required most agricultural produce to be sold through regulated market yards controlled by licensed commission agents. The laws were designed to protect farmers from unregulated exploitation; in practice, they often entrenched the commission agents as mandatory intermediaries and prevented direct sales, contract farming, or cooperative purchasing. The contested reforms of 2020 (later withdrawn) were precisely about this disintermediation question: whether farmers should be allowed to sell directly to buyers, bypassing the market yards. The political fight was fierce because the intermediary interests were substantial.

Financial intermediation is the sector where the gap between value provided and margin captured may be largest — and where community-based alternatives have the most potential.

The standard financial intermediary chain runs: central bank to large commercial banks to smaller regional banks to local branches to individual borrowers. At each step, margin is added. For a mortgage in the United States, the spread between what the bank pays for funds and what it charges the borrower has historically been 2 to 3 percent annually — representing, over the life of a 30-year mortgage, roughly 40 to 60 percent of total payments. For small business loans, the spread is often 5 to 8 percent. For credit cards, 10 to 15 percent. For payday loans, the effective annual rate often exceeds 300 percent.

Credit unions — cooperatively owned financial intermediaries where depositors and borrowers are the same people — consistently charge lower loan rates and pay higher deposit rates than commercial banks. The difference is the margin that, in commercial banks, flows to shareholders. Studies consistently show credit union loan rates 1 to 2 percentage points below comparable commercial bank rates for similar borrowers.

Community development financial institutions (CDFIs) operating in underserved markets demonstrate that financial intermediation can be performed at much lower margins when the intermediary is accountable to the community it serves rather than to outside shareholders. Their performance has been documented by the Treasury Department's CDFI Fund across decades.

The frontier is blockchain-based decentralized finance (DeFi), which attempts to perform financial intermediation through automated smart contracts with near-zero intermediary margins. The experiments have been volatile and often fraudulent in their early iterations, but the underlying principle — that algorithmic matching can substitute for human intermediaries in standard transaction types — has been demonstrated in narrow contexts.

The United States healthcare system features perhaps the most elaborate intermediary structure in any industry anywhere. Between the doctor who provides care and the patient who needs it, there may be: a health insurance company, a pharmacy benefit manager, a pharmacy, a hospital system, a group purchasing organization, a medical supply distributor, a medical billing company, a revenue cycle management firm, and several others depending on the specifics.

Each intermediary extracts margin. The aggregate result is that the United States spends approximately twice what peer nations spend on healthcare per capita, for similar or worse outcomes — with much of the difference attributable to administrative complexity and intermediary extraction.

The community-level responses have been instructive:

Direct primary care. Subscription-based primary care practices that charge patients directly — typically $50 to $100 per month — and accept no insurance eliminate most of the insurance intermediation for primary care. Physicians in DPC practices have dramatically lower administrative costs and can spend more time with patients. The practices generally provide care comparable or superior to insurance-based primary care for patients who can afford the subscription.

Reference pricing. When employers or insurers tell patients "we'll pay the 25th percentile price for this procedure, and you can keep the difference if you find a lower-cost provider," patients actively shop for price. Studies of reference pricing in California's CalPERS system showed significant price compression in surgical and imaging markets. The existence of price variation — hospitals charging 3x to 10x the lowest-cost provider for identical services — is itself a product of opacity maintained by intermediaries.

Community purchasing cooperatives. Groups of employers and individuals who aggregate purchasing power and negotiate directly with providers, cutting out traditional insurance intermediaries, have proliferated. The Health Rosetta model, among others, documents examples of companies reducing healthcare spending by 20 to 40 percent through direct contracts and benefit redesign that bypasses traditional insurance intermediation.

The most critical issue in disintermediation is who controls the new connecting infrastructure. Disintermediation through platforms controlled by extractive corporations may simply replace one intermediary with another — and potentially a worse one.

Uber disintermediated taxi medallion systems — genuine monopoly intermediaries — but replaced them with an algorithmic intermediary that extracts a 25 to 30 percent commission, controls the demand-side relationship entirely, and has systematically driven driver incomes toward or below minimum wage in many markets. Airbnb disintermediated hotel chains but now charges 14 to 20 percent in host and guest fees for a platform that hosts depend on but don't own.

The community-owned alternative to corporate platforms is the cooperative platform. Stocksy United (a photographer cooperative) charges 50 percent commission where Getty Images charges 85 percent, and distributes profits to photographers. Up&Go (a home services cooperative) charges a 5 percent platform fee where TaskRabbit charges 15 percent. The driver-owned cooperative taxi apps that have launched in several cities charge drivers a flat fee rather than a commission percentage.

The pattern is consistent: cooperative platforms — owned by the producers who use them — charge dramatically lower effective fees than investor-owned platforms, because the profit extraction motive is absent. The "natural monopoly" argument for winner-take-all platforms — that network effects require a single dominant platform — is contested by the cooperative economics literature and by the evidence from sectors where cooperative platforms compete successfully with corporate ones.

The aggregate value captured by extractive intermediation globally is difficult to estimate precisely, but the orders of magnitude are available.

Agricultural marketing margins in low-income countries: studies suggest farm-gate prices average 30 to 50 percent of retail prices in traditional channels. A significant fraction of this gap reflects genuine logistics and processing value; a significant fraction reflects intermediary extraction. Conservative estimates suggest that connected, cooperative marketing channels could deliver 10 to 20 percent higher farm-gate prices globally — affecting hundreds of millions of smallholder farmers.

Financial intermediation in consumer credit: the interest rate spread between what banks pay for deposits and what they charge borrowers globally is trillions of dollars annually. Credit union performance versus commercial bank performance suggests that community-controlled financial intermediation could deliver 1 to 2 percentage points lower borrowing costs — on global consumer debt of roughly $50 trillion, that is $500 billion to $1 trillion annually.

Healthcare intermediation in the United States alone: administrative costs and intermediary extraction are estimated at $800 billion to $1 trillion annually beyond what peer health systems spend. Even partial disintermediation through community-organized purchasing would represent enormous recapture of value.

The point is not precision — these numbers are rough. The point is that the stakes are civilizational. The intermediary economy extracts value at scales that dwarf most other policy questions. Connected communities that build their own intermediary infrastructure — cooperative platforms, credit unions, purchasing cooperatives, direct producer-consumer links — are doing more than saving money. They are restructuring who benefits from economic activity, and shifting value from distant shareholders to the communities where work and trade actually occur.