This paper presents a parametric model that explains why individuals choose to trade with an intermediary. This choice is based on a comparison of the gain from trading with the intermediary with the expected gain from entering a matching process where individuals can choose to be direct buyers, direct sellers, or nonparticipants. The intermediary provides a service by making the product more liquid by lowering the probability of an unsuccessful trade. However, the individuals who choose to remain direct traders are made worse-off by the existence of the intermediary. Copyright 1996 by The London School of Economics and Political Science.