CDFP 2321R

Market-Minded Informational Intermediary and Unintended Welfare Loss

Author(s): 

Publication Date: January 2022

Revision Date: July 2022

Pages: 59

Abstract: 

This paper examines the welfare implications of third-party informational intermediation. A seller sets the price of a product that is sold through an informational intermediary. The intermediary can disclose information about the product to consumers and earns a fixed percentage of sales revenue in each period. The intermediary’s market base grows at a rate that increases with past consumer surplus. We characterize the stationary equilibria and the set of subgame perfect equilibrium payoffs. When market feedback (i.e., the extent to which past consumer surplus affects future market bases) increases, welfare may decrease in the Pareto sense.

Supplemental material

Supplement pages: 17

Keywords: : Informational intermediary, market base, market feedback, consumer surplus, Pareto-inferior outcomes, stationary-Markov equilibrium, subgame perfect equilibrium

JEL Classification Codes: C73D61D82D83L15M37

See CFDP Version(s): CDFP 2321