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Drugs, Showrooms and Financial Products: Competition and Regulation when Sellers Provide Expert Advice

Author

Listed:
  • Bardey, David
  • Gromb, Denis
  • Martimort, David
  • Pouyet, Jérôme

Abstract

We consider a market in which sellers can exert an information-gathering effort to advise buyers about which of two goods best fits their needs. Sellers may steer buyers towards the higher margin good. We show that for sellers to collect and reveal information, profits on both goods must be sufficiently close to each other, i.e., lie within an implementability cone, which competition or regulation may ensure. Instruments to do so vary with the context. Controlling market power while improving the quality of advice is more difficult when sellers have private information on the profitability of the goods.

Suggested Citation

  • Bardey, David & Gromb, Denis & Martimort, David & Pouyet, Jérôme, 2016. "Drugs, Showrooms and Financial Products: Competition and Regulation when Sellers Provide Expert Advice," CEPR Discussion Papers 11665, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:11665
    as

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    References listed on IDEAS

    as
    1. Winand Emons, 2000. "Product Differentiation and Price Competition Between a Safe and a Risky Seller," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 156(3), pages 431-431, September.
    2. Antoine Faure-Grimaud & Eloïc Peyrache & Lucía Quesada, 2009. "The ownership of ratings," RAND Journal of Economics, RAND Corporation, vol. 40(2), pages 234-257.
    3. Dubois, Pierre & Sæthre, Morten, 2017. "On the Effect of Parallel Trade on Manufacturers’ and Retailers’ Profits in the Pharmaceutical Sector," Discussion Paper Series in Economics 3/2018, Norwegian School of Economics, Department of Economics.
    4. Dulleck, Uwe & Kerschbamer, Rudolf, 2009. "Experts vs. discounters: Consumer free-riding and experts withholding advice in markets for credence goods," International Journal of Industrial Organization, Elsevier, vol. 27(1), pages 15-23, January.
    5. repec:bla:joares:v:25:y:1987:i:1:p:68-89 is not listed on IDEAS
    6. Patrick Bolton & Xavier Freixas & Joel Shapiro, 2004. "Conflicts of interest, information provision and competition in banking," Economics Working Papers 760, Department of Economics and Business, Universitat Pompeu Fabra.
    7. Inderst, Roman & Ottaviani, Marco, 2012. "How (not) to pay for advice: A framework for consumer financial protection," Journal of Financial Economics, Elsevier, vol. 105(2), pages 393-411.
    8. Oliver Board, 2009. "COMPETITION AND DISCLOSURE -super-," Journal of Industrial Economics, Wiley Blackwell, vol. 57(1), pages 197-213, March.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    asymmetric information; Competition; Expertise; Mis-Selling; regulation; Retailing;

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage
    • I11 - Health, Education, and Welfare - - Health - - - Analysis of Health Care Markets
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L15 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Information and Product Quality
    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation

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