The Middleman, the Broker, and the Platform
"Eliminate the middleman" is one of the oldest slogans in economics. It is also one of the most naive." — Adapted from various sources
The Arthiya of Azadpur
Dinesh Kumar is an arthiya — a commission agent — at Azadpur Mandi in Delhi. His family has been in the business for three generations. His grandfather started with a small stall trading onions from Rajasthan. His father expanded to potatoes, cauliflower, and tomatoes. Dinesh now handles produce from eight states.
Ask the farmers about Dinesh and you get two different answers.
Some farmers trust him completely. "Dinesh bhai gives a fair price. He advances me money before the season when I need to buy seeds. If my crop is bad, he still buys from me. He has been with my family for twenty years."
Other farmers are more bitter. "The arthiya takes his commission whether my crop is good or bad. He decides the price. I have no choice. If I try to sell directly, I cannot find buyers. He controls the market."
Both views are true. That is the paradox of the middleman.
Dinesh gets up at three in the morning. He is at the mandi by four. He inspects arriving produce, grades it mentally, contacts his network of buyers — retailers, restaurants, institutional kitchens, smaller traders. He arranges weighing, loading, transport. He keeps accounts. He settles payments. He handles disputes. He does this every day, including Sundays, because produce does not wait.
For this, he takes a commission — typically six to eight percent. On good days, he handles produce worth several lakhs. His income is comfortable but not extravagant. His sons are in college. He worries about the future of the mandi system.
Is Dinesh a hero or a villain? He is neither. He is a middleman — someone who exists because he solves problems that neither the farmer nor the buyer can solve alone.
Look Around You
Think about the middlemen in your life. The real estate broker who helped you find your apartment. The insurance agent who sold you a policy. The travel agent who booked your tickets (before you started doing it online). The wedding planner. The job placement agency.
For each one, ask: what problem did they solve? Could you have done it yourself? Would the outcome have been better or worse without them? How much did they charge — and was it worth it?
Why Middlemen Exist
The middleman is one of the most reviled figures in popular economics. "Cut out the middleman!" is a rallying cry heard from politicians, reformers, and tech entrepreneurs alike.
But middlemen keep existing. In every economy, in every era, in every market. If they were purely parasitic, they would have been eliminated long ago. They persist because they solve real problems.
Problem 1: Matching. The farmer in Nashik does not know who in Delhi wants his onions. The restaurant in Delhi does not know which farmer in Nashik has good onions. The middleman connects them. This matching function — bringing together buyers and sellers who would not otherwise find each other — is genuinely valuable.
Problem 2: Trust. The farmer does not know if the buyer will pay. The buyer does not know if the farmer's produce is good. The middleman, who has relationships with both, guarantees the transaction. His reputation is his collateral.
Problem 3: Logistics. Moving produce from a farm in Maharashtra to a market in Delhi requires transport, storage, handling, and timing. The middleman coordinates this. Individual farmers and buyers cannot easily manage the logistics of large-scale trade.
Problem 4: Finance. The middleman often provides credit. He advances money to farmers before the harvest — for seeds, fertilizer, labor. He gets repaid when the crop is sold. This credit function is crucial in rural India, where formal banking often fails to reach small farmers.
Problem 5: Risk absorption. The middleman takes on risk. If produce spoils in transit, if the buyer defaults, if prices crash — the middleman absorbs some of the loss. He can do this because he diversifies across many transactions, many farmers, and many buyers.
WHAT THE MIDDLEMAN ACTUALLY DOES
==================================
FARMER MIDDLEMAN BUYER
┌──────────┐ ┌──────────────┐ ┌──────────┐
│ Has: │ │ Provides: │ │ Has: │
│ Produce │────────────>│ │───────────>│ Money │
│ │ │ 1. MATCHING │ │ │
│ Needs: │ │ (finds buyer)│ │ Needs: │
│ Buyer │ │ │ │ Produce │
│ Money │<────────────│ 2. TRUST │<───────────│ Quality │
│ Credit │ payment │ (guarantees │ payment │ assurance│
│ Transport│ │ both sides) │ │ Reliable │
│ │ │ │ │ supply │
│ │ │ 3. LOGISTICS │ │ │
│ │ │ (moves goods)│ │ │
│ │ │ │ │ │
│ │ │ 4. FINANCE │ │ │
│ │<────────────│ (credit to │ │ │
│ │ advance │ farmer) │ │ │
│ │ │ │ │ │
│ │ │ 5. RISK │ │ │
│ │ │ (absorbs │ │ │
│ │ │ losses) │ │ │
└──────────┘ └──────────────┘ └──────────┘
The commission the middleman charges is payment for
ALL of these services. The question is: is the
commission proportionate to the service?
When Middlemen Exploit
The services middlemen provide are real. But so is the exploitation.
The exploitation happens when the middleman has power that the producer does not — and uses it to extract more than the value of his services.
In Indian agriculture, the farmer is often trapped. He has one harvest of a perishable crop. He has debt to repay. He cannot store his produce. He cannot transport it far. He does not know buyers in distant cities. He must sell quickly, at whatever price the mandi offers.
The arthiya, by contrast, is a repeat player. He knows all the buyers. He has storage capacity. He controls information about prices in other markets. He can wait. The farmer cannot.
This power imbalance means the arthiya can sometimes set prices below what the farmer would receive in a truly competitive market. The commission is not the only extraction — the real extraction happens through the prices the arthiya negotiates, using his information and power advantage.
Add to this the interlocking of credit and trade. When the arthiya lends money to the farmer at the beginning of the season, the farmer is obligated to sell through that arthiya at harvest. The credit relationship binds the trading relationship. The farmer cannot shop around for a better price because he owes the arthiya money.
This system — where credit, trade, and obligation interlock — has deep roots in Indian agriculture. It is not unique to India. Similar systems exist in commodity-producing regions worldwide. And they persist because no better alternative has fully replaced them.
"The middleman is a shock absorber, a translator, and sometimes a tyrant — often all three at once."
What Actually Happened
In 2016, the Indian government demonetized high-denomination currency notes. One stated goal was to disrupt the cash-heavy mandi system and reduce the power of middlemen who operated in cash.
The immediate effect was chaos. Mandis across India came to a near-standstill because trade ran on cash. Farmers could not sell their produce. Arthiyas could not pay. Prices crashed not because of supply and demand but because the payment system seized up.
Ironically, the disruption hurt farmers — the intended beneficiaries — more than it hurt middlemen. The arthiyas had networks, capital reserves, and banking relationships to weather the shock. The farmers, already the weakest link, bore the brunt.
The lesson: disrupting middlemen without building alternative systems hurts the people the middlemen serve — however imperfectly.
The East India Company: The Ultimate Middleman
If you want to understand middlemen at their most powerful and most destructive, look at the East India Company.
The English East India Company, chartered in 1600, began as a trading firm. It positioned itself as a middleman between Indian producers and European consumers. It bought spices, textiles, and later tea and opium from India, and sold them in Europe at enormous markups.
But the Company was not a neutral intermediary. It was a middleman with an army. It used military force to secure trading monopolies. It eliminated competing traders — Indian, Portuguese, Dutch, French. It imposed terms on producers that were not negotiated but dictated.
In Bengal, the Company fixed the prices at which weavers had to sell their cloth — prices far below market value. Weavers who tried to sell to other buyers were punished. The Company's agents — called gomastas — would advance money to weavers, binding them in debt relationships that turned them into captive suppliers.
This is the middleman as extractor. The Company performed some genuine intermediary functions — it organized shipping, managed risk, connected distant markets. But the value it extracted was vastly disproportionate to the services it provided. The gap was filled by force.
THE EAST INDIA COMPANY AS MIDDLEMAN
=====================================
INDIAN PRODUCERS EUROPEAN CONSUMERS
┌──────────────────┐ ┌──────────────────┐
│ Weavers │ │ Buyers in London, │
│ Spice growers │ │ Amsterdam, Paris │
│ Opium farmers │ │ │
│ Tea plantation │ │ Willing to pay │
│ workers │ │ HIGH prices │
│ │ │ │
│ Paid LOW prices │ │ │
│ (or forced to │ │ │
│ sell at fixed │ │ │
│ rates) │ │ │
└────────┬─────────┘ └────────┬──────────┘
│ │
│ EAST INDIA COMPANY │
│ ┌──────────────────────┐ │
│ │ │ │
└────>│ Bought LOW │<────┘
│ Sold HIGH │
│ Difference: PROFIT │
│ │
│ Backed by: │
│ - Military force │
│ - Legal monopoly │
│ - Debt bondage │
│ - State capture │
│ │
│ Net value extracted │
│ from India: │
│ TRILLIONS (est.) │
└──────────────────────┘
A middleman with an army is not a middleman.
It is an empire.
The lesson is not that all middlemen are East India Companies. The lesson is that the middleman's role — connecting producers and consumers — can be a genuine service or a mechanism of extraction, depending on the power dynamics.
The New Middlemen: Platforms
Now let us fast-forward to the twenty-first century. The middlemen are changing. The arthiya and the broker are being joined — and sometimes replaced — by digital platforms.
Amazon connects sellers and buyers. Swiggy connects restaurants and diners. Uber connects drivers and passengers. Airbnb connects hosts and travelers. YouTube connects creators and audiences.
These platforms are middlemen. They perform the same functions: matching, trust, logistics, sometimes finance. But they do it at a scale and speed that no traditional middleman can match.
And they raise the same old questions. Are they serving producers and consumers? Or are they extracting too much?
Consider Swiggy, the food delivery platform. A restaurant sells a meal for three hundred rupees through Swiggy. Swiggy takes a commission of twenty-five to thirty-five percent — seventy-five to one hundred and five rupees. The delivery partner earns thirty to fifty rupees per delivery. The restaurant receives the rest — roughly one hundred and fifty to two hundred rupees — from which it must cover food costs, rent, and staff.
The restaurant's margin, already thin, gets thinner. Many restaurant owners report that they make almost no profit on Swiggy orders. But they cannot leave the platform because Swiggy controls access to customers. Customers order through the app. If the restaurant is not on Swiggy, the customer goes to a restaurant that is.
This is the platform paradox. The platform creates value — it brings customers who would not otherwise have found the restaurant. But it also captures value — through commissions, data control, and the network effects that make the platform increasingly indispensable.
Platform Power: Network Effects and Lock-In
What makes platforms different from traditional middlemen is their ability to achieve monopoly-like power through network effects.
A network effect means that a service becomes more valuable as more people use it. WhatsApp is useful because everyone you know is on it. If only five people used WhatsApp, it would be useless. The more users, the more valuable — and the harder to leave.
Platforms exploit network effects to create lock-in. Once enough restaurants are on Swiggy, customers come to Swiggy. Once enough customers are on Swiggy, restaurants must be on Swiggy. The platform becomes the market itself. And once it is the market, it has enormous power over both sides.
Amazon follows the same logic. Once enough sellers are on Amazon, buyers come. Once enough buyers come, sellers must be there. Amazon can then raise commissions, promote its own private-label products over third-party sellers, and change the rules — because sellers have no viable alternative.
TRADITIONAL SUPPLY CHAIN vs. PLATFORM ECONOMY
================================================
TRADITIONAL:
Producer ──> Wholesaler ──> Distributor ──> Retailer ──> Consumer
│ │ │
Each takes Each takes Each takes
a margin a margin a margin
(5-15%) (5-10%) (20-40%)
Total middleman take: ~40-65%
But: Multiple independent actors. Competition possible at each stage.
Farmer can switch wholesaler. Retailer can switch distributor.
PLATFORM:
Producer ──────────────> PLATFORM <──────────────── Consumer
│
Takes 15-35%
Controls data
Sets the rules
Owns the relationship
with the consumer
Total middleman take: ~15-35%
BUT: Single point of control. No competition at the platform level.
Switching costs are HIGH (network effects).
Platform can change rules unilaterally.
Lower commission ≠ less power.
The platform may take less per transaction
but controls the ENTIRE relationship.
Do Platforms Help or Exploit?
The honest answer is: both. And the balance depends on the platform's market power.
How platforms help:
A small artisan in Kutch can sell embroidered textiles on Etsy or Amazon to buyers worldwide. Without the platform, her market would be limited to local shops and occasional tourist visits. The platform gives her access to a global market.
A driver who cannot afford a taxi license can earn a livelihood through Ola or Uber. The platform handles payments, navigation, and customer acquisition. The driver just needs a car and a phone.
A home cook can start a food business on a platform with zero capital — no restaurant lease, no staff, no marketing budget. The platform provides the infrastructure.
How platforms exploit:
An Uber driver who was once earning a decent income finds that the platform keeps cutting fares and raising its commission. He works longer hours for less money. He cannot negotiate — the algorithm sets the terms. If he leaves, he loses access to customers.
Amazon promotes its own private-label products in search results while pushing third-party sellers down. The seller pays commissions, advertising fees, and storage charges to Amazon while competing against Amazon's own products on Amazon's own platform.
Swiggy and Zomato delivery partners work in rain and heat, face traffic dangers, and earn per delivery — with no employment benefits, no health insurance, no job security. They are not "employees" but "partners." The platform avoids the costs and obligations of employment while controlling every aspect of the work.
"When a platform becomes the market, the platform becomes the regulator. And unlike elected regulators, platforms answer only to shareholders."
The Middleman Through History
The middleman is not new. Let us see how the role has evolved.
The Hundi banker of medieval India facilitated trade across regions by allowing merchants to transfer money without physically moving it. The hundi was a bill of exchange — a written promise. The hundi banker sat between two distant parties and, through his reputation and network, made trade possible across thousands of miles.
The Medicis of Florence (15th century) were middlemen between lenders and borrowers, monarchs and merchants. They built one of the first modern banking empires by intermediating the flow of money across Europe.
The compradores of colonial China were Chinese merchants who served as middlemen between European traders and the Chinese interior. They made trade possible by navigating cultural, linguistic, and institutional barriers. They also became agents of colonial extraction.
The dalal in the Bombay stock market (now BSE) was originally a broker who matched buyers and sellers of shares. When formal regulations were weak, the dalal's personal reputation was the primary trust mechanism.
In each case, the middleman emerged because of a gap — in trust, information, logistics, or access. And in each case, the middleman could be a bridge or a barrier, depending on the context.
The Question of Elimination
"Cut out the middleman" sounds appealing. Technology makes it seem possible. If farmers can sell directly to consumers through an app, why do we need arthiyas?
But the experience of direct-selling platforms in India has been mixed.
Several agri-tech startups have tried to connect farmers directly to retailers or consumers. Some have succeeded in specific niches. But many have struggled because:
- Logistics: Moving perishable produce from farms to consumers requires cold chains, sorting, and timing that platforms struggle to manage without local infrastructure.
- Credit: Farmers need advances that platforms cannot always provide.
- Quality assurance: Without a trusted intermediary who physically inspects produce, quality control is difficult.
- Scale: Individual farmers produce small quantities. Aggregation — gathering produce from many farmers into commercially viable lots — is a service that someone must perform.
The arthiya provides these services imperfectly and sometimes exploitatively. But simply removing the arthiya without providing these services through other means does not help the farmer. It may make things worse.
The better question is not "how do we eliminate the middleman?" but "how do we ensure the middleman provides fair value?"
This requires competition (so middlemen cannot monopolize), transparency (so prices are visible), regulation (so exploitation has consequences), and alternatives (so producers have choices).
Think About It
Think of a middleman you deal with regularly — a broker, a platform, a dealer. Is their commission fair? How would you judge fairness?
When Uber first entered Indian cities, fares were very low (subsidized by investor money). Once Uber became dominant and competitors weakened, fares rose. Is this pattern inevitable with platforms? How could it be prevented?
A small farmer in Madhya Pradesh grows organic lentils. He could sell to the local arthiya for Rs. 60/kg or try to sell on a platform for Rs. 100/kg — but he needs smartphone literacy, internet access, packaging, and courier coordination. Which option is better for him? What would need to change for the direct option to work?
Is Amazon more like a marketplace (a neutral space where buyers and sellers meet) or more like a feudal lord (who controls the land and extracts rent from everyone who uses it)?
The Bigger Picture
The middleman — whether an arthiya in a mandi, a broker on a stock exchange, or an algorithm on a platform — is one of the most persistent figures in economic life. Middlemen exist because they solve real problems: matching, trust, logistics, finance, and risk management.
But middlemen also have a tendency to accumulate power and use it to extract more than the value of their services. The arthiya who binds farmers through debt, the platform that locks in users through network effects, the colonial trading company that enforced monopolies through military force — these are not aberrations. They are the natural tendency of intermediation when unchecked by competition and regulation.
The challenge is not to eliminate middlemen but to keep them honest. This requires competitive markets (so producers and consumers have alternatives), transparent information (so prices and commissions are visible), effective regulation (so exploitation has consequences), and — perhaps most importantly — organized producers (so farmers and workers can bargain collectively rather than individually).
The next chapter takes us to the question that underlies much of what we have discussed: competition. What does competition really mean? How does it actually work in the real world — which is a long way from the textbook ideal? And what happens when competition fails?
"Between the producer and the consumer stands the middleman. Whether he is a bridge or a toll gate depends on whether he has competition."