I will now elaborate on the above points.
Providing the Immediate Market
Suppose you have spent your lifetime collecting an obscure area like Gold Coast, or Allied Occupation issues of Europe during World War II. The time has come to sell. Where do you turn? If there are no dealers and you are selling to individual collectors you have two options:
1. Look for a single collector to take the entire collection off your hands for a reasonable price., or
2. You sell all the stamps individually to different collectors.
The problem with option 1 is that it may take a very long time to locate a collector who shares your interest to the same level of detail and who is both willing and able financially to acquire your collection. In the case of option 2, you will obtain maximum price for each individual stamp if you sell directly to collectors, but it will take a lot of time and effort to accurately describe your stamps and sell them. In addition, there is no guarantee that you will be able to sell them all within a reasonable time frame. A third option might me to consign it to an auction house. But the problem with that is that there is usually a considerable amount of lead time required to sell your stamps and pay you. What if you need the money quickly?
Dealers provide the solution. A good dealer is willing to take on the financial risk of breaking your collection down and carrying it in his or her stock until it can be sold to all those individual collectors. The dealer is usually fully aware of the fact that it may take years to sell, and that a portion of it will not ultimately sell. Thus it is largely because of all the dealers in the hobby that most collectors can rest assured that there is a more or less immediate market for their material when the time comes to sell. In many cases selling to a dealer provides a better financial result when the collection consists mostly of low to mid range material and few if any rarities. Auctions are the preferred route when your collection is a very popular area or contains a large number of individually valuable stamps that can be offered for sale individually. Most collectors do not form collections like that, so for most people selling to dealers makes sense.
Assumption of Risk on Behalf of Collectors
Many philatelic areas are very complex to the point that correctly identifying particular printings of issues, shades of colour, paper types, forgeries, repairs and the like can be very problematic for the non-expert. Unless the buyer possesses years of experience with the stamps in question, they can run a considerable risk when they buy stamps from other collectors. If they are experts then there is no issue. But what if you are a collector who wants to form a general collection such as the first stamps from every country in the world? Almost all #1's involve pitfalls such as forgeries, repairs and regumming if you collect mint stamps. How do you ensure that the hundreds or thousands of dollars that you are spending on your stamps is being spent on accurately described, genuine stamps?
You can assure yourself of this by purchasing either from a reputable auctioneer, or a dealer who specializes in the stamps you collect and who stands behind everything he or she sells. It is this last point that differentiates many good retail dealers from auctioneers. Most auction houses have strict return policies and time limits on returns. The reason is that they are general merchants who do not maintain a stock of any one area, and much of the time they are selling material they do not own. A good dealer will take back a stamp he or she sold you six months ago if that is how long it takes you to discover that it is in fact a forgery.
Thus dealers take on all the risk of mis-identification and save collectors from it, provided that they act with impeccable integrity. That is the key to choosing a good dealer.
How do you assess the dealer's integrity? Watch how they handle complaints from customers, or how they react when their expertise is questioned. A good dealer is concerned with making sure that everything he or she sells is fairly priced and consistently and accurately graded because this is what enables an orderly and confident stamp market to flourish. They will therefore welcome questions and will respond courteously.
This doesn't mean that there won't be instances where the dealer charges more than many collectors are comfortable paying, or this his or her interpretation of grading standards will differ from many collectors. But it does mean that he or she will be happy to clearly explain what his or her grading standards are, will apply them consistently and will also be happy to explain the basis for his or her prices.
Dissemination of Knowledge to Collectors
Because the dealer is a specialist and spends his or her days buying and selling stamps, he or she accumulates a vast wealth of knowledge that is generally beyond the reach of most collectors who only have limited financial resources and limited amounts of time to spend on their hobbies. A good dealer will pass this knowledge on to collectors, both directly through various means, and indirectly through the descriptions of the stamps he or she is selling.
One of the main categories of knowledge that dealers acquire is that of the true scarcity of material. Because of the volume of material they handle, dealers are in a much better position than most collectors are to know the true scarcity of particular items. Good dealers will not overuse the superlatives "scarce" and "rare" but will seek to educate collectors about the scarcity of material that genuinely warrants it.
Promotion of the Hobby to Non-Collectors
Traditional bricks-and-mortar dealers did a better job of this than us online dealers just by being visible to the average person on the street. However, that is usually all they did traditionally, other than attending stamp shows and being nice to kids who came to their shops. The internet, particularly social media provides countless opportunities to promote the hobby by making stamps visible to people who have never seen how beautiful they can be. There are countless avenues through which to write and post articles promoting the hobby, and a good dealer will devote at least some time to promoting the hobby.
One Stop Shop
Lets say that you want to choose a collecting area in which to specialize. You want to choose an area that you can afford, that has a sufficient amount of material to hold your interest and is complex enough to be interesting. How do you know if a particular area meets these criteria? Looking in a stamp catalogue will give you some indication of affordability, but it won't really give you a good indication of complexity, because most catalogues only list a fraction of the material that exists. It also won't tell you where you can find that material.
Once you have chosen an area to collect you go about sourcing the material. Now lets say that you are a very busy person and only have 2 hours a week to spend on your hobby. Chances are you want to spend as much of it as possible enjoying your stamps and as little as possible sourcing the stamps. It can take many hours on e-bay and other sites sorting through the one-off random listings of stamps from individual collectors. This is the case even when you use keyword searches.
A good dealer takes on the sourcing function for you by specializing in a particular area or group of areas and then goes about building and maintaining a comprehensive stock of the material in that area. This way you can focus on enjoying the stamps, rather than trying to find them.
A dealer can only remain in business if her or she can generate enough profit to make a reasonable living. The dealer is clearly providing a number of services to collectors at large and it stands to reason that he or she should be adequately compensated for providing those services. How does the dealer get compensated? By selling his or her stamps at a reasonable price and buying at a reasonable price. Because of the fact that he or she is providing a service, these prices will never be the same as what a collector could obtain from directly dealing with another collector.
However, the alternative is a hobby in which stamps are much less liquid because there are so few collectors with the financial means to absorb the volume of material offered for sale. The alternative is a kind of "wild west" where the term Caveat Emptor rules the roost in all transactions. I highly doubt that is the kind of environment most collectors want to encourage. But I believe that collectors are so used to the existing landscape that they take it for granted without thinking about how it would change if there were no dealers.