Informational Intermediation, Market Feedback, and Welfare Losses

Wenji Xu and Kai Hao Yang ()
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Wenji Xu: College of Business, City University of Hong Kong
Kai Hao Yang: Cowles Foundation and School of Management, Yale University, https://som.yale.edu/faculty/kai-hao-yang

No 2321, Cowles Foundation Discussion Papers from Cowles Foundation for Research in Economics, Yale University

Abstract: This paper examines the welfare implications of third-party informational intermediation. A seller sets the price of a product that is sold through an informational intermediary. The intermediary can disclose information about the product to consumers and earns a fixed percentage of sales revenue in each period. The intermediary's market base grows at a rate that increases with past consumer surplus. We characterize the stationary equilibria and the set of subgame perfect equilibrium payoffs. When market feedback (i.e., the extent to which past consumer surplus affects future market bases) increases, welfare may decrease in the Pareto sense.

Keywords: Informational intermediary; market size; market feedback; consumer surplus; Pareto-inferior outcomes; Markov perfect equilibrium; subgame perfect equilibrium. (search for similar items in EconPapers)
JEL-codes: C73 D61 D82 D83 L15 M37 (search for similar items in EconPapers)
Pages: 58 pages
Date: 2022-10
New Economics Papers: this item is included in nep-ban, nep-com, nep-gth, nep-ind, nep-mic and nep-ore
Note: Includes Supplemental Material
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