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A middleman, in the original sense, was someone who stood between a producer and a consumer and facilitated a transaction that wouldn’t have happened otherwise. The grain merchant who connected farmers to city bakers. The shipping broker who matched cargo to vessels. Real value, clearly provided.
The interesting thing about middlemen is that the good ones make themselves invisible. You don’t think about the logistics company that moved your package from Shenzhen to your doorstep. You don’t think about the market maker who ensured there was a buyer when you sold your stock. The transaction just works, and the middleman takes a small cut for making it work.
The bad ones do the opposite. They make themselves essential — not by providing value, but by controlling access.
Think about concert tickets. The venue exists. The artist exists. You exist, with money and desire to attend. In a world of pure information, this transaction is trivial: the venue posts available seats, you buy one, done.
But there are middlemen — several layers of them — and their business model depends on the transaction not being trivial. Exclusive distribution contracts ensure you can’t buy directly from the venue. Dynamic pricing algorithms ensure you pay the maximum you’re willing to. Resale platforms create a secondary market that profits from the artificial scarcity created by the primary market.
None of these middlemen are connecting a producer and consumer who couldn’t otherwise find each other. The farmer needed the grain merchant because he couldn’t walk to every bakery in London. You don’t need Ticketmaster because the venue is literally a building you could walk to and buy a ticket from.
The middleman’s value proposition shifted from “I connect” to “I control.” And once you see this pattern, you see it everywhere.
The Pattern
It works like this:
- A middleman enters a market and provides genuine value. They reduce friction, aggregate demand, or provide information that wasn’t previously available.
- They gain market share because they’re useful. Participants prefer using them over the alternative.
- They achieve dominance. At some point, using the middleman shifts from optional to effectively mandatory.
- The value proposition inverts. The middleman’s revenue increasingly comes from controlling access rather than facilitating it.
- Rent extraction begins. Fees increase. Terms worsen. The middleman captures more of the transaction value while providing proportionally less.
Real estate agents. Academic publishers. Health insurance companies. App store operators. Payment processors. The specific industry changes; the arc doesn’t.
Why It Persists
The obvious question: if bad middlemen extract rent without providing proportional value, why don’t markets route around them?
A few reasons:
Regulatory capture. Many middleman positions are protected by regulation that the middlemen themselves lobbied for. Real estate licensing requirements don’t protect consumers — they protect the commission structure.
Information asymmetry. The middleman knows more about the transaction than either party. This knowledge differential, which was originally the source of their value, becomes a tool for maintaining their position.
Coordination costs. Disintermediating a middleman requires all participants to simultaneously adopt an alternative. This is a classic collective action problem — everyone would benefit, but nobody wants to move first.
Switching costs and lock-in. Once a middleman controls enough of the market, the cost of working around them exceeds the cost of paying their rent. You could sell your app outside the App Store, but can you afford to lose access to a billion users?
I find middlemen fascinating not because they’re villains — most of them started by solving a real problem — but because they’re a perfect case study in how useful structures calcify into extractive ones. The grain merchant and the ticket scalper are on the same continuum. The distance between them is time, market power, and the slow replacement of “I help” with “you need me.”
The healthiest markets are the ones where middlemen remain optional. Where there’s always a way — maybe less convenient, maybe more work — to connect producer to consumer directly. Not because middlemen are inherently bad, but because the option of disintermediation is what keeps them honest.
When that option disappears, you don’t have a facilitator anymore. You have a tollbooth.