Intermediation and Steering: Competition in Prices and Commissions
American Economic Journal: Microeconomics
vol. 14,
no. 2, May 2022
(pp. 281-321)
Abstract
We explore the implications of steering by an informed profit-maximizing intermediary. The intermediary steers consumers by recommending firms, taking into account both the commissions firms offer and the prices they set. Such steering results in higher commissions and consumer prices, so that consumers only benefit from intermediation when their search cost is sufficiently high. Steering reverses the normal relationship between competition and price, with prices increasing in the number of competing firms. We use the framework to study various policies including commission caps (absolute or relative), commission disclosure, promoting information provision, and penalties for inappropriate advice.Citation
Teh, Tat-How, and Julian Wright. 2022. "Intermediation and Steering: Competition in Prices and Commissions." American Economic Journal: Microeconomics, 14 (2): 281-321. DOI: 10.1257/mic.20190344Additional Materials
JEL Classification
- D11 Consumer Economics: Theory
- D12 Consumer Economics: Empirical Analysis
- D82 Asymmetric and Private Information; Mechanism Design
- D83 Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
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