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The Fate of the Middleman in the Information Age :

This research explores the reasons behind the persistence of the wholesale sector and the driving forces behind its spatial reorganization in Sweden between 1990 and 2010. The study suggests that advancements in ICT have contributed to the success of middlemen (wholesalers), and human capital has played a vital role in this process.

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The Fate of the Middleman in the Information Age :

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  1. The Fate of the Middleman in the Information Age: The role of human capital in the spatial growth of wholesale services in Sweden Author: Therese Norman-Monroe Center ofEntrepeneurship and Spatial Economics @Jönköping University, Sweden

  2. I’m going to talk about…. • Function of wholesalers in the market economy – informationaspect • Empirical observations of the spatial reorganization of wholesalers between 1990 and 2010 in Sweden.

  3. Layout of presentation • Motivation • 1 • 2 • Method • 3 • Descriptive statistics • 4 • Results • 5 • Conclusion

  4. 1. Motivation 13 slides

  5. INFORMATION SUPERHIGHWAY THE END OF THE MIDDLEMAN Bill Gates: Friction-free capitalism Nov 1995 CUT OUT THE MIDDLEMAN Early 90s: The internet will become the “universal middleman” and the only humans involved in a transaction will be the actual buyer and seller. (Marina Krakovskyquoting Bill Gates in “The Middleman Economy: How Brokers, Agents, Dealers, and Everyday Matchmakers Create Value and Profit”)

  6. Wholesalers did not disappear

  7. Stockholm got spiky in terms of wholesale density 2010 1990

  8. This paper investigates: Why the wholesale sector did not disappear. What has been the major driving forces in the spatial reorganization of the wholesale sector?

  9. for a house!? One red paperclip…

  10. One red paperclip • A role in a movie • Fish pen • Door knob • KISS snow globe • Coleman stove • A House • Generator • A Day with Alice Cooper • Instant party • One year rent free in Phoenix • Snow mobile • Recording contract • Cube van http://oneredpaperclip.blogspot.com

  11. Kyle (the middleman): • provided people with what they wanted (but didn’t know existed). • is a master of information. • provided value. • couldn’t have done it without the internet (probably). • The internet helped Kyle connect people through gathering together dispersed bits of incomplete “knowledge of the particular circumstances of time and place” -Hayek. • Key point: even though the internet has collected information to one place, extracting relevant knowledge is not automatic but takes work.

  12. Moregenerally, wholesalersuse and spread information by: • having asset-specific knowledge regarding geographic and sectoral markets. • supplying information regarding available products to existing and potential customers and signal customer preferences and their willingness to pay producers. • specializingby focusing on marketing channels, distribution systems and supply chains; • successful wholesalers: • use innovative methods for distributing goods, • develop improved methods to store goods, • introduce new technology. “Prior studies regarding wholesale firms suggest that their knowledge-intensive characteristics represent their primary contribution to market efficiency” (Krakovsky, 2015; Tollens and Argenti, 2000).

  13. Middlemen (wholesalers) provide value through turning existing information into knowledge of how and when and where people (or firms) are made better off.In order to do this successfully, wholesalers need sophisticated employees to make use of advanced technology. The key point:

  14. The Hypothesis: Rather than putting an end to the middleman, the advancement of ICT has contributed to its success and human capital has played an important role in the spatial reorganization of wholesale industries at a granular spatial scale in Sweden between 1990 and 2010.

  15. By the way… You might be thinking that wholesalers just follow demand and therefore locate close to demand.

  16. …and you’d be right if we look at a low resolution… …but you’d be wrong when looking at a higher resolution. PS. This is a good example of MAUP

  17. Main finding: Locations where human capital is high  significantly higher growth rates of all wholesale subindustries but one. This is true on a granular level (5*5km2), but not on a broader level (municipality).

  18. 2. Empirics: Method 4 slides

  19. Split up wholesale sector into 4 subindustries • Producer goods • Nondurables • Durables • Specialized • Building materials • Metals, Wood • Machines, Tools • Industrial and office equipment • Food • Drinks • Plants • Flowers • Furniture • Household goods • Clothes • Computers • Tele-communication • Other high-tech To reduce heterogeneity since… the dynamics of the subindustries across space may work differently depending on the perishability, tangibility, size, knowledge input, and type of consumers of the product they trade.

  20. Swedish Data is wonderful Yearly point coordinates of all firms and employees with a bunch of characteristics attached in Sweden since 1990. Aggregate data to 5*5km grid cells and calculate spatial weights, etc…

  21. Also, run 2SLS with distance to university as IV for access to human capital.

  22. Access to human capital measured as: % of the population that is working age (20-64) and possesses a university degree in the immediate surroundings of each cell location in 1990. The change in the above variable in separate regression Immediate surroundings refers to the 5 by 5 km grid cell and its neighboring cells with a weight of 0.5 (i.e. the weight matrix is defined by queen contiguity of order 1.

  23. 3. Empirics: Descriptive stats 2 slides

  24. Winners and losers of wholesale subindustries

  25. Education of workers has changed

  26. 4. Empirics: Results 1 slide

  27. OLS and 2SLS Access to human capital (% educated) estimates Instrumental variable: Logged travel time to universities.

  28. 5. Conclusion 2 slides

  29. Conclusion Locating close to human capital has been crucial for the ‘success’ of wholesalers.

  30. But it doesn’t mean that we need more university educated in Sweden. Instead, the paper aidsan understanding of: • the importance of access to human capital for wholesalers, • how wholesalers respond to changes in access to human capital in terms of their spatial organization, and • under what circumstances wholesalers are expected to be successful and contribute to the market economy. Developing countries often lack well-functioning wholesale markets. How will expanding ICTs affect their wholesale sectors? Do they have access to human capital?

  31. Thank you!

  32. Supporting charts and figures

  33. Travel time to CBD and growth of subindustries

  34. Differencebetweenwholesale and logisticsfirms Logistics firms focus on the delivery of products to customers (order processing, warehousing, materials handling, transportation and inventory control, etc. Wholesaling is all activities involved in selling products to firms (selling, promoting, buying, assortment building, bulk-breaking, warehousing, transportation, financing, risk-bearing, market information, management services and advice, etc.

  35. OLS

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