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Why Do Intermediaries Divert Search?

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  • Hagiu, Andrei

Abstract

We analyze the incentives to divert search for an information intermediary who enables buyers (consumers) to search affiliated sellers (stores). There are three motives for diverting search (i.e. inducing consumers to search more than they would like): i) trading off higher total consumer traffic for higher revenues per consumer visit; ii) reducing the variance of store profits when store affiliation decisions are endogenous; and iii) influencing stores’ choices of strategic variables (e.g. pricing) once they have decided to affiliate. We show that search diversion remains a necessary strategic instrument for the intermediary even when the contracting space is significantly enriched: allowing the intermediary to charge consumers fixed fees, to offer them screening contracts, to subsidize search; allowing stores’ strategic decisions to be contractible or controlled by the intermediary. Keywords: Market Intermediation, Search, Two-Sided Markets, Platform Design. JEL Classifications: L1, L2, L8.

Suggested Citation

  • Hagiu, Andrei, 2009. "Why Do Intermediaries Divert Search?," Department of Economics, Working Paper Series qt3f34c5dk, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
    • Handle: RePEc:cdl:econwp:qt3f34c5dk
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    References listed on IDEAS

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    Cited by:

    1. Kfir Eliaz & Ran Spiegler, 2011. "A Simple Model of Search Engine Pricing," Economic Journal, Royal Economic Society, vol. 121(556), pages 329-339, November.
    2. Nestor Duch-Brown, 2017. "Platforms to business relations in online platform ecosystems," JRC Working Papers on Digital Economy 2017-07, Joint Research Centre.

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    More about this item

    Keywords

    market intermediation; search; two-sided markets; platform design. jel classifications: l1; l2; l8.;
    All these keywords.

    JEL classification:

    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance
    • L2 - Industrial Organization - - Firm Objectives, Organization, and Behavior
    • L8 - Industrial Organization - - Industry Studies: Services

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