Asymmetric Information and Delegated Selling

Maarten Janssen and Santanu Roy

No 2015, Departmental Working Papers from Southern Methodist University, Department of Economics

Abstract: Asymmetric information about product quality can create incentives for a privately informed manufacturer to sell to uninformed consumers through a retailer and to maintain secrecy of upstream pricing. Delegating retail price setting to an intermediary generates pooling equilibria that avoid signaling distortions associated with direct selling even under reasonable restrictions on beliefs; these beliefs can also prevent double marginalization by the retailer. Expected profit, consumer surplus and social welfare can all be higher with intermediated selling. However, if secrecy of upstream pricing cannot be maintained, selling through a retailer can only lower the expected profit of the manufacturer.

Keywords: Asymmetric Information; Product Quality; Delegation, Intermediary, Signaling. (search for similar items in EconPapers)
JEL-codes: D43 D82 L13 L15 (search for similar items in EconPapers)
Date: 2020-12
New Economics Papers: this item is included in nep-com, nep-cta, nep-ind and nep-mic
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Working Paper: Asymmetric Information and Delegated Selling (2020)
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