Advice by an Informed Intermediary: Can You Trust Your Broker?

Anton Suvorov and Tsybuleva Natalia
Additional contact information
Tsybuleva Natalia: The Centre for Economic and Financial Research, ntsyboul@yahoo.com

The B.E. Journal of Theoretical Economics, 2010, vol. 10, issue 1, 35

Abstract: The paper investigates the credibility of an intermediary's advice in a bilateral trade model. A seller and a buyer with private and independent valuations exchange a unit of good. Trade is mediated by an intermediary, who observes a coarse signal about the buyer's valuation and may reveal it to the seller before bargaining. We show that if the broker gets a fixed per-transaction fee, he can fully transmit information via cheap talk. This information transmission increases ex ante welfare of the seller and the broker but has an ambiguous impact on the buyer. We show that limits to informative communication may arise if the intermediary observes signals about valuations of both participants or because of competition between intermediaries. Finally, using mechanism design approach, we show that choosing an appropriate system of two-part tariffs allows the intermediary to secure the same expected profit as in the optimal direct mechanism.

Keywords: informed intermediary; cheap talk; advice; bilateral trade (search for similar items in EconPapers)
Date: 2010
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
https://doi.org/10.2202/1935-1704.1688 (text/html)
For access to full text, subscription to the journal or payment for the individual article is required.

Related works:
Working Paper: Advice by an Informed Intermediary: Can You Trust Your Broker? (2008)
Working Paper: Advice by an Informed Intermediary: Can You Trust Your Broker? (2008)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:bpj:bejtec:v:10:y:2010:i:1:n:50

Ordering information: This journal article can be ordered from
https://www.degruyter.com/journal/key/bejte/html

DOI: 10.2202/1935-1704.1688

Access Statistics for this article

The B.E. Journal of Theoretical Economics is currently edited by Burkhard C. Schipper

More articles in The B.E. Journal of Theoretical Economics from De Gruyter
Bibliographic data for series maintained by Peter Golla ().