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Intermediation and Steering: Competition in Prices and Commissions

Author

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  • Tat-How Teh
  • Julian Wright

Abstract

We explore the implications of steering by an informed profit-maximizing intermediary. The intermediary steers consumers by recommending firms, taking into account both the commissions firms offer and the prices they set. Such steering results in higher commissions and consumer prices, so that consumers only benefit from intermediation when their search cost is sufficiently high. Steering reverses the normal relationship between competition and price, with prices increasing in the number of competing firms. We use the framework to study various policies including commission caps (absolute or relative), commission disclosure, promoting information provision, and penalties for inappropriate advice.

Suggested Citation

  • Tat-How Teh & Julian Wright, 2022. "Intermediation and Steering: Competition in Prices and Commissions," American Economic Journal: Microeconomics, American Economic Association, vol. 14(2), pages 281-321, May.
    • Handle: RePEc:aea:aejmic:v:14:y:2022:i:2:p:281-321
    DOI: 10.1257/mic.20190344
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    More about this item

    JEL classification:

    • D11 - Microeconomics - - Household Behavior - - - Consumer Economics: Theory
    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness

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