American Economic Review
ISSN 0002-8282 (Print) | ISSN 1944-7981 (Online)
Competition through Commissions and Kickbacks
American Economic Review
vol. 102,
no. 2, April 2012
(pp. 780–809)
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)Citation
Inderst, Roman, and Marco Ottaviani. 2012. "Competition through Commissions and Kickbacks." American Economic Review 102 (2): 780–809. DOI: 10.1257/aer.102.2.780Additional Materials
JEL Classification
- 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