The contractual nature of middleman: from transaction cost perspective

The analysis of vertical integration by traditional theory is usually from the view of production and the nature of middleman in circulation is overlooked. This article argues, with analysis by transaction cost theory, that middleman exists because when uncertainty and asset specificity of product are low; middleman cuts down the cost in comparison with the transaction between manufacture and consumer. However the degree to which middleman replaces market depends on the degree of asset specificity of investment.