Working Paper: CEPR ID: DP12048
Authors: Daniele Condorelli; Andrea Galeotti; Vasiliki Skreta
Abstract: AbstractWe endogenize intermediaries’ choice to operate as agents or merchants in a market where there are frictions due to asymmetric information about consumption values. A seller has an object for sale and can reach buyers only through intermediaries. Intermediaries can either mediate the transaction by buying and reselling–the merchant mode–or refer buyers to the seller for a fee–the agency mode. When the seller can condition the minimum selling price to the intermediaries’ business model choice, all intermediaries specialize in agency. The seller’s and intermediaries’ joint profits equal the seller’s profits when he has access to all buyers. When the seller’s trading protocol does not depend on the business mode adopted by intermediaries, hybrid agency-merchant mode are adopted in equilibrium. Banning the agency mode can decrease welfare since the merchant mode is associated with additional allocative distortions due to asymmetric information compared to agency.
Keywords: referrals; intermediaries; asymmetric information; resale
JEL Codes: D44; C72
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Intermediaries' business model choice (D26) | Market outcomes (D49) |
| Agency mode (L85) | Aggregate equilibrium profit and welfare (D69) |
| Seller's ability to set reserve price (D44) | Intermediaries' business model choice (D26) |
| Banning agency mode (Z28) | Decreased welfare (I38) |
| Agency mode prevalence (L85) | Higher consumer surplus (D11) |
| Agency mode (L85) | More efficient allocation of goods (D61) |
| Agency mode (L85) | Better market outcomes (G19) |