Coinbase is not conventional real time exchange where price is determined by demand-supply. They fetch rate from Bitstamp and execute trades. That's it!
That said, how do they cope with current situation like this, where flash crash occurs? I guess, their buying and selling is backed by liquidity plus some buffer stocks of coins. Do they forward order to order books of international exchanges?

Don't you think, exchanges like Coinbase would distort market in near future if they become too big? Because real time exchanges are suppose to determined rate by processing information by individual buyer/seller with their price quote. What is mean is, price is determined by information, that is one of basic principles of free market and when exchanges like Coinbase are too big they can absorb very important 'buying/selling order that ought to be reflecting information/market sentiment.