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Measuring the Welfare of Intermediation in Vertical Markets

Author

Listed:
  • Javier Donna

    (The Ohio State University)

  • Andre Trindade

    (Getulio Vargas Foundation (FGV))

  • Pedro Pereira

    (Autoridade da Concorrência)

  • Tiago Pires

    (U North Carolina)

Abstract

We empirically investigate the welfare implications of intermediaries in oligopolistic markets, where intermediaries offer additional services to differentiate their products from the ones of the manufacturers. Our identification strategy exploits the unique circumstance that, in the outdoors advertising industry, there are two distribution channels: consumers can purchase the product either directly from manufacturers, or with the intermediation of retailers. Using product-level data for the whole industry, we estimate a differentiated products’ equilibrium model that includes: consumers who have preferences that are specific to each distribution channel and engage in costly search on the demand side; and two layers of activity (where manufacturers and intermediaries bar- gain over wholesale prices) with two distribution channels (where the two distribution channels compete a la Bertrand) on the supply side. The estimated model is used to simulate counterfactual scenarios, where intermediaries do not offer additional services. These counterfactuals are used to quantify the welfare effects of intermediaries.

Suggested Citation

  • Javier Donna & Andre Trindade & Pedro Pereira & Tiago Pires, 2018. "Measuring the Welfare of Intermediation in Vertical Markets," 2018 Meeting Papers 984, Society for Economic Dynamics.
    • Handle: RePEc:red:sed018:984
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    Cited by:

    1. José L Moraga-González & Zsolt Sándor & Matthijs R Wildenbeest, 2021. "Simultaneous Search for Differentiated Products: The Impact of Search Costs and Firm Prominence," The Economic Journal, Royal Economic Society, vol. 131(635), pages 1308-1330.
    2. Gary Biglaiser & Fei Li & Charles Murry & Yiyi Zhou, 2020. "Intermediaries and product quality in used car markets," RAND Journal of Economics, RAND Corporation, vol. 51(3), pages 905-933, September.

    More about this item

    JEL classification:

    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • L42 - Industrial Organization - - Antitrust Issues and Policies - - - Vertical Restraints; Resale Price Maintenance; Quantity Discounts
    • L81 - Industrial Organization - - Industry Studies: Services - - - Retail and Wholesale Trade; e-Commerce
    • M37 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Marketing and Advertising - - - Advertising

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