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In a simple economy, there is no need for the middlemen in the distribution of goods and services. In such an economy, say, for example, a historical pre-industrialization European economy or a contemporary emerging African village economy, a middleman aiding in distribution of goods and services may never develop. To illustrate this idea, look at a reliably authentic example from fiction written in the early 1800s. In Jane Austen's fictional Emma, Mr. and Mrs. Elton were married in Bath, England.
The text suggests that, after his proposal, they delayed their wedding (similar to all young couples of their social standing) until after their carriage was built. Mr. and Mrs. Elton would not have dealt with a middleman, and the carriage builder would have had no need of a middleman, because the carriage builder and the client (the Eltons) were in near proximity to each other, were able to negotiate a reasonable and socially uniform price with each other in person, and were able to make and take delivery of the goods without concern for transporting the finished product.
A middleman for the distribution for goods and services develops as part of a supply chain when an economy becomes so complex and sophisticated, spanning great distances, differentiating into more and more highly technical divisions that the scenario depicted for the Eltons can no longer exist, when we can no longer go to an independent producer of high or low value items and select or special order without consideration of materials, cost, distance or time.
Abigail Cooke makes the point in "New Role for the Middleman" that even in the e-commerce era opened by the Internet, a middleman adds value to the transaction thus is still a needed member of the supply chain. Some examples she uses are farmers and sports enthusiasts-turned-manufacturers who have limited understanding of expert technological knowledge, expert product management and distribution knowledge or expert transportation scheduling knowledge.
Therefore, while there are producer advantages in cost cutting and profit maximizing resulting from eliminating the middleman, the actual and potential disadvantages (e.g., limiting market area, customer base, finished goods supply options) of eliminating the middleman in today's sophisticated and Internet-based marketplaces make such an elimination impractical on the various levels suggested above.
If it were a good idea to eliminate middlemen, they would most likely have been eliminated by now as businesses try to cut their costs as much as possible.
Middlemen are parts of distribution chains and they actually do perform important functions. For example, middlemen may have very good connections to customers on a local level. These relationships that they have make it easier for a firm to sell its product to these customers. In a case like this, the middleman is worth what the firm pays because he is able to increase its sales.
Because middlemen perform this function and others like it, they are sometimes vital to a firm's success.
In theory, eliminating the middlemen sounds like a good idea. This would help to lower costs for consumers who could buy products for less and for businesses who could sell their products for less. However, this may not be the most practical idea.
Middlemen provide an important service. Think about the groceries you buy. The grocery store is an example of a middleman in business. When you buy groceries, you can get various products all in one place. You don’t have to go directly to the farmer to buy milk, meat, and vegetables. You don’t have to go directly to a bakery to buy bread and other bakery products. The same can be said for all of the products in the grocery store. While middlemen add cost to a product, when thinking of the time and expense you would have to incur to buy all of your items directly from the supplier, you will very likely be better off by purchasing most of your products from a middleman than by purchasing them directly from the producer.
The same is true for business owners. Business owners are very likely to be able to increase sales by using a middleman than by trying to sell their products directly to the consumers. Thus, having middlemen as part of the process of distributing goods and services makes a lot of sense.
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