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Selling Through Referrals

Author

Listed:
  • Daniele Condorelli
  • Andrea Galeotti
  • Vasiliki Skreta

Abstract

We endogenize intermediaries' choice to operate as agents or merchants in a market where there are frictions due to asymmetric information about consumption values. A seller has an object for sale and can reach buyers only through intermediaries. Intermediaries can either mediate the transaction by buying and reselling - the merchant mode - or refer buyers to the seller for a fee - the agency mode. When the seller can condition the minimum selling price to the intermediaries' business model choice, all intermediaries specialize in agency. The seller's and intermediaries' joint profits equal the seller's profits when he has access to all buyers. When the seller's trading protocol does not depend on the business mode adopted by intermediaries, hybrid agency-merchant mode are adopted in equilibrium. Banning the agency mode can decrease welfare since the merchant mode is associated with additional allocative distortions due to asymmetric information compared to agency.
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Suggested Citation

  • Daniele Condorelli & Andrea Galeotti & Vasiliki Skreta, 2013. "Selling Through Referrals," Working Papers 13-06, New York University, Leonard N. Stern School of Business, Department of Economics.
  • Handle: RePEc:ste:nystbu:13-06
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    File URL: http://web-docs.stern.nyu.edu/old_web/economics/docs/workingpapers/2013/Skreta_Referrals_May2013.pdf
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    References listed on IDEAS

    as
    1. Daniele Condorelli & Andrea Galeotti & Ludovic Renou, 2017. "Bilateral Trading in Networks," Review of Economic Studies, Oxford University Press, vol. 84(1), pages 82-105.
    2. Philippe Jehiel & Benny Moldovanu, 1999. "Resale Markets and the Assignment of Property Rights," Review of Economic Studies, Oxford University Press, vol. 66(4), pages 971-991.
    3. Gehrig, Thomas, 1993. "Intermediation in Search Markets," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 2(1), pages 97-120, Spring.
    4. Arbatskaya, Maria & Konishi, Hideo, 2012. "Referrals in search markets," International Journal of Industrial Organization, Elsevier, vol. 30(1), pages 89-101.
    5. Michael Peters, 1997. "A Competitive Distribution of Auctions," Review of Economic Studies, Oxford University Press, vol. 64(1), pages 97-123.
    6. McAfee, R Preston, 1993. "Mechanism Design by Competing Sellers," Econometrica, Econometric Society, vol. 61(6), pages 1281-1312, November.
    7. Hagiu Andrei, 2007. "Merchant or Two-Sided Platform?," Review of Network Economics, De Gruyter, vol. 6(2), pages 1-19, June.
    8. Alok Johri & John Leach, 2002. "Middlemen and the Allocation of Heterogeneous Goods," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 43(2), pages 347-362, May.
    9. Montgomery, James D, 1991. "Social Networks and Labor-Market Outcomes: Toward an Economic Analysis," American Economic Review, American Economic Association, vol. 81(5), pages 1407-1418, December.
    10. Watanabe, Makoto, 2010. "A model of merchants," Journal of Economic Theory, Elsevier, vol. 145(5), pages 1865-1889, September.
    11. Yavas, Abdullah, 1992. "Marketmakers versus matchmakers," Journal of Financial Intermediation, Elsevier, vol. 2(1), pages 33-58, March.
    12. In-Uck Park, 2005. "Cheap-Talk Referrals of Differentiated Experts in Repeated Relationships," RAND Journal of Economics, The RAND Corporation, vol. 36(2), pages 391-411, Summer.
    13. Roger B. Myerson, 1981. "Optimal Auction Design," Mathematics of Operations Research, INFORMS, vol. 6(1), pages 58-73, February.
    14. Gaudin, Germain & White, Alexander, 2014. "On the antitrust economics of the electronic books industry," DICE Discussion Papers 147 [rev.], University of Düsseldorf, Düsseldorf Institute for Competition Economics (DICE).
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    Cited by:

    1. Gaudin, Germain & White, Alexander, 2014. "On the antitrust economics of the electronic books industry," DICE Discussion Papers 147, University of Düsseldorf, Düsseldorf Institute for Competition Economics (DICE).
    2. repec:kap:qmktec:v:15:y:2017:i:2:d:10.1007_s11129-017-9183-z is not listed on IDEAS
    3. repec:kap:revind:v:51:y:2017:i:2:d:10.1007_s11151-017-9583-y is not listed on IDEAS
    4. Babur De los Santos & Matthijs Wildenbeest, 2014. "E-book Pricing and Vertical Restraints," Working Papers 14-18, NET Institute.

    More about this item

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions

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