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American Economic Review: Vol. 102 No. 2 (April 2012)
AER Volume. 102, Issue 2 | 
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Competition through Commissions and Kickbacks
Article Citation
Inderst, Roman, and
Marco Ottaviani. 2012. "Competition through Commissions and Kickbacks."
American Economic Review,
102(2): 780-809.
DOI: 10.1257/aer.102.2.780
DOI: 10.1257/aer.102.2.780
Abstract
In markets for retail financial products and health services, consumers
often rely on the advice of intermediaries to decide which specialized offering best fits their needs. Product providers, in turn, compete to influence the intermediaries' advice through hidden kickbacks or disclosed commissions. Motivated by the controversial role of these widespread practices, we formulate a model to analyze competition
through commissions from a positive and normative standpoint. The model highlights the role of commissions in making the advisor responsive to supply-side incentives. We characterize situations when commonly adopted policies such as mandatory disclosure
and caps on commissions have unintended welfare consequences. (JEL D21, D82, D83, G21, L15, L25)
Article Full-Text Access
Full-text Article
Additional Materials
Online Appendix (143.51 KB)
Authors
Inderst, Roman (Johann Wolfgang Goethe U Frankfurt and Imperial College U)
Ottaviani, Marco (Northwestern U)
Ottaviani, Marco (Northwestern U)
JEL Classifications
D21: Firm Behavior: Theory
D82: Asymmetric and Private Information
D83: Search; Learning; Information and Knowledge; Communication; Belief
G21: Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
L15: Information and Product Quality; Standardization and Compatibility
L25: Firm Performance: Size, Diversification, and Scope
D82: Asymmetric and Private Information
D83: Search; Learning; Information and Knowledge; Communication; Belief
G21: Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
L15: Information and Product Quality; Standardization and Compatibility
L25: Firm Performance: Size, Diversification, and Scope
