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Monopoly intermediary and information transmission

Author

Listed:
  • Lucia Quesada

    (Universite de Toulouse)

  • Eloic Peyrache

    (Universite de Toulouse)

Abstract

In this paper we extend Lizzeri's simple model of information transmission through certification intermediaries. A seller with no means to signal his quality has the possibility to be certified by an institution that owns a technology to discover the true quality and can credibly commit to a disclosure rule. We study the incentives of this institution to disclose information to the buyers. When buyers are risk neutral, the intermediary cannot help to increase the total surplus and, therefore, there is no disclosure of information at equilibrium. Moreover, there always exists an equilibrium with no revelation of information. However, with an unrestricted space of contracts, self selection of sellers indirectly transmits some information. On the other hand, when buyers are risk averse, the intermediary can increase total surplus by inducing better risk sharing. We show that the equilibrium is to offer a menu of contracts where information will be fully disclosed for all types above a certain threshold and no announcement is made for the others.

Suggested Citation

  • Lucia Quesada & Eloic Peyrache, 2003. "Monopoly intermediary and information transmission," Industrial Organization 0304005, University Library of Munich, Germany.
    • Handle: RePEc:wpa:wuwpio:0304005
    Note: Type of Document - Pdf; prepared on IBM PC - PC-TEX; to print on HP/A4paper; pages: 25 ; figures: included
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    File URL: https://econwpa.ub.uni-muenchen.de/econ-wp/io/papers/0304/0304005.pdf
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    Cited by:

    1. Katarina Svitkova & Andreas Ortmann, 2006. "Certification as a Viable Quality Assurance Mechanism: Theory and Suggestive Evidence," CERGE-EI Working Papers wp288, The Center for Economic Research and Graduate Education - Economics Institute, Prague.

    More about this item

    Keywords

    Intermediary; Certification; Information Transmission; Quality;
    All these keywords.

    JEL classification:

    • D42 - Microeconomics - - Market Structure, Pricing, and Design - - - Monopoly
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • L15 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Information and Product Quality

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