Market-Minded Informational Intermediary and Unintended Welfare Loss

Wenji Xu and Kai Hao Yang ()
Additional contact information
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 2321A, Cowles Foundation Discussion Papers from Cowles Foundation for Research in Economics, Yale University

Abstract: This paper examines the welfare effects of informational intermediation. A (short-lived) seller sets the price of a product that is sold through a (long-lived) informational intermediary. The intermediary can disclose information about the product to consumers, earns a fixed percentage of the sales revenue in each period, and has concerns about its prominence—the market size it faces in the future, which in turn is increasing in past consumer surplus. We characterize the Markov perfect equilibria and the set of subgame perfect equilibrium payoffs of this game and show that when the market feedback (i.e., how much past consumer surplus affects future market sizes) 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: 48 pages
Date: 2022-01
Note: Includes Supplemental Material
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