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Definition: Intermediated Market
It is a market or a situation in which one or more financial institutions stands in between counterparties in a financial transaction. This means that in an intermediated market, there has to be an institution in between two parties for the transaction to take place. This type of market is also known as reseller market which consists of businesses that acquires goods intended to resell them in order to make a profit.
It is an indirect form of borrowing where there is a financial institution which moderates the transaction. An example of a transaction in an intermediated market is the requirement of loan wherein there is a financial institution, responsible for channeling of the loanable funds from individual and corporate to borrowers.
Intermediated markets also include organized auction markets, such as bond, stock and commodity futures markets and auction markets. By posting prices, intermediaries reduce the cost for search of buyers and sellers. But intermediaries mostly buy at a lower price and sell at a higher price, which generates positive revenue for any commodity bought in the input market and sold again on the output market.
Intermediaries, when designing the pricing strategy should take into account the characteristics of underlying search market as traders with little gains from the trade may not be willing to pay this transaction cost and may prefer to the frictional market. In an unorganized market, buyers and sellers meet randomly for negotiation of the terms of trade, which may cause delay. If this delay is expensive to the traders, an opportunity arises for intermediaries to provide a trading post.