Working Paper: CEPR ID: DP14815
Authors: Andrew Rhodes; Makoto Watanabe; Jidong Zhou
Abstract: This paper develops a new framework for studying multiproduct intermediaries when consumers demand multiple products and face search frictions. We show that a multiproduct intermediary is profitable even when it does not improve consumer search efficiency. In its optimal product selection, it stocks high-value products exclusively to attract consumers to visit, then profits by selling non-exclusive products which are relatively cheap to buy from upstream suppliers. However, relative to the social optimum, the intermediary tends to be too big and stock too many products exclusively. As applications we use the framework to study the optimal design of a shopping mall, and the impact of direct-to-consumer sales by upstream suppliers on the retail market.
Keywords: intermediaries; multiproduct demand; search; direct-to-consumer sales; product range; exclusivity
JEL Codes: D83; L42; L81
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| product selection (L68) | profitability (L21) |
| exclusivity (Y60) | consumer welfare (D69) |
| DTC sales (L81) | intermediary product stocking (L81) |
| DTC sales (L81) | exclusivity of stocked products (L15) |