Journal of Economic Literature (JEL) Code(s)
C73, D61, D82, D83, L15, M37
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 fixed 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.
Yang, Kai Hao and Xu, Wenji, "Informational Intermediation, Market Feedback, and Welfare Losses" (2022). Cowles Foundation Discussion Papers. 2760.