Intermediation and Steering: Competition in Prices and Commissions

Tat-How Teh and Julian Wright

American Economic Journal: Microeconomics, 2022, vol. 14, issue 2, 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.

JEL-codes: D11 D12 D82 D83 (search for similar items in EconPapers)
Date: 2022
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Citations: View citations in EconPapers (20)

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DOI: 10.1257/mic.20190344

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