Reasons for Elimination of Middlemen

In this post, we shall examine the reasons why middlemen should either be eliminated or limited in number. At the end of this lesson, students should be able to:

• explain the function of a middleman;
• highlight reasons why middlemen should be eliminated; and
• state reasons for the limitation of middlemen.

Middlemen

Middlemen, also known as intermediaries, play a crucial role in the distribution chain between manufacturers and consumers. They facilitate the flow of products from manufacturers to consumers.

Middlemen may include wholesalers and retailers who facilitate the movement of goods from production to the final consumers. While middlemen offer benefits like distribution efficiency and market access, there are situations where their elimination or limitation may be considered.

Reasons for the Elimination of Middlemen

1. Establishment of Warehouses by Manufacturers: Manufacturers may choose to set up their warehouses to directly supply goods to retailers or consumers, bypassing traditional middlemen.
2. Employment of Commercial Travelers or Salesmen: Manufacturers can employ sales representatives to directly reach out to retailers and consumers, eliminating the need for middlemen.
3. Perishable Goods: In the case of perishable goods, direct distribution from manufacturers to consumers can reduce handling time and ensure freshness.
4. Goods with Low Rate of Turnover: For goods with slow turnover rates, direct distribution can streamline the supply chain and avoid unnecessary delays.
5. Wide Demand: When there is a high demand for a product, manufacturers may prefer direct distribution to meet consumer needs efficiently.
6. Manufacturer-Operated Retail Shops: Manufacturers may establish their retail shops to create a direct link with consumers, enhancing brand visibility and control.
7. Consumer Collective Purchasing in Bulk: Consumers can combine their orders and purchase goods in bulk directly from manufacturers to benefit from cost savings.

Reasons to Limit the Number of Middlemen

1. Price Increase: A large number of middlemen can result in price markups, leading to higher prices for consumers.
2. Artificial Scarcity and Hoarding: Some middlemen may engage in hoarding practices, thereby bringing about artificial scarcity of goods and higher prices.
3. Inflation: When middlemen add significant margins to the cost of goods, it can contribute to inflationary pressures in the economy.
4. Price Differences in Different Areas: Middlemen may charge different prices in various regions, leading to price disparities.
5. Price Fluctuation: Frequent changes in prices by middlemen can lead to price fluctuations, affecting consumer purchasing decisions.