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Asymmetric Information and Delegated Selling

Author

Listed:
  • Maarten Janssen

    (University of Vienna)

  • Santanu Roy

    (Southern Methodist University)

Abstract

Asymmetric information about product quality can create incentives for a privately informed manufacturer to sell to uninformed consumers through a retailer and to maintain secrecy of upstream pricing. Delegating retail price setting to an intermediary generates pooling equilibria that avoid signaling distortions associated with direct selling even under reasonable restrictions on beliefs; these beliefs can also prevent double marginalization by the retailer. Expected profit, consumer surplus and social welfare can all be higher with intermediated selling. However, if secrecy of upstream pricing cannot be maintained, selling through a retailer can only lower the expected profit of the manufacturer.

Suggested Citation

  • Maarten Janssen & Santanu Roy, 2020. "Asymmetric Information and Delegated Selling," Departmental Working Papers 2015, Southern Methodist University, Department of Economics.
    • Handle: RePEc:smu:ecowpa:2015
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    JEL classification:

    • 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
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection

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