Publication Date: November 2020
This paper develops a new framework for studying multiproduct intermediaries when consumers demand multiple products and face search frictions. We show that a multiproduct intermediary is proﬁtable even when it does not improve consumer search eﬀiciency. In its optimal product selection, it stocks high-value products exclusively to attract consumers to visit, then proﬁts by selling non-exclusive products which are relatively cheap to buy from upstream suppliers. However, relative to the social optimum, the intermediary tends to be too big and stock too many products exclusively. As applications we use the framework to study the optimal design of a shopping mall, and the impact of direct-to-consumer sales by upstream suppliers on the retail market.
Keywords: Intermediaries, Multiproduct demand, Search, Direct-to-consumer sales, Product range, Exclusivity
JEL Classification Codes: D83, L42, L81