Competing Sales Channels with Captive Consumers

David Ronayne and Greg Taylor

The Economic Journal, 2022, vol. 132, issue 642, 741-766

Abstract: We study strategic interactions in markets in which firms sell to consumers both directly and via a competitive channel, such as a price comparison website or marketplace, where multiple sellers’ offers are visible at once. We ask how a competitive channel’s size influences market outcomes when some consumers have limited price information. A bigger competitive channel means that more consumers compare prices, increasing within-channel competition. However, we show that such seemingly pro-competitive developments can raise prices and harm consumers by weakening between-channel competition.

Date: 2022
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