CFDP Update Date
Journal of Economic Literature (JEL) Code(s)
C73, D61, D82, D83, L15, M37
This paper examines the welfare effects of informational intermediation. A (short-lived) seller sets the price of a product that is sold through a (long-lived) informational intermediary. The intermediary can disclose information about the product to consumers, earns a fixed percentage of the sales revenue in each period, and has concerns about its prominence---the market size it faces in the future, which in turn is increasing in past consumer surplus. We characterize the Markov perfect equilibria and the set of subgame perfect equilibrium payoffs of this game and show that when the market feedback (i.e., how much past consumer surplus affects future market sizes) increases, welfare may decrease in the Pareto sense.
Xu, Wenji and Yang, Kai Hao, "Market-Minded Informational Intermediary and Unintended Welfare Loss" (2022). Cowles Foundation Discussion Papers. 2676.