Disintermediation

In the context of economics, the term disintermediation refers to the process of removing middlemen, often known as intermediaries, from a process or supply chain. Distributors, brokers, and wholesalers are examples of such intermediaries. Traditional supply chains usually require the participation of one or more of such actors. It is, however, possible for a company to interact directly with its customers, or at least reduce the number of parties involved in the completion of one transaction.

Distintermediation may come about as a result of consumers’ initiatives. This may happen when market transparency is high. This means that consumers have access to information on the price set by the producer. By going straight to the producer instead of to the retailer, the end user is able to avail of the product at a much lower price. If this is not possible, the consumer may also try to purchase the product from a wholesaler. In this case, the price will still be lower than if the product were purchased from a retailer.

For companies, one of the main advantages of disintermediation is the reduction of costs. Since fewer entities are involved, the cost of delivering a product to the customer is also minimized.

In the context of banking, which is the first industry to have made use of the term, disintermediation may translate into investment in securities, instead of setting up savings accounts. The term has also been used to refer to the act of proceeding to capital markets instead of banks for the borrowing purposes.

Disintermediation has the opposite effect of reintermediation, which seeks to add intermediaries, often in cases where disintermediation has not produced a desirable effect.

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