Informational Intermediation, Market Feedback, and Welfare Losses

Authors

Wenji Xu, City University of Hong Kong
Kai Hao Yang, Yale University

Document Type

Discussion Paper

Publication Date

1-2022

CFDP Number

2321R

CFDP Revision Date

7-28-22

CFDP Pages

59

Journal of Economic Literature (JEL) Code(s)

C73, D61, D82, D83, L15, M37

Abstract

This paper examines the welfare implications of third-party informational intermediation. A seller sets the price of a product that is sold through an informational intermediary. The intermediary can disclose information about the product to consumers and earns a fied percentage of sales revenue in each period. The intermediary's market base grows at a rate that increases with past consumer surplus. We characterize the stationary equilibria and the set of subgame perfect equilibrium payoffs. When market feedback (i.e., the extent to which past consumer surplus affects future market bases) increases, welfare may decrease in the Pareto sense.

Recommended Citation

Xu, Wenji and Yang, Kai Hao, "Informational Intermediation, Market Feedback, and Welfare Losses" (2022). Cowles Foundation Discussion Papers. 2705.
https://elischolar.library.yale.edu/cowles-discussion-paper-series/2705