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A Model of Biased Intermediation

Author

Listed:
  • Cornière (de), Alexandre
  • Taylor, Greg
Abstract
This paper studies situations in which some consumers rely on a potentially biased intermediary to choose among downstream firms. We introduce the notion that firms' and consumers' payoffs can be congruent or conflicting, and show that this has important implications for the effects of bias. Under congruence, the firm towards which the intermediary is biased invests more than its rival and consumers can be better-off than under no bias. Under conflict, bias hurts consumers and the favored firm charges higher prices. We study various oft-proposed policies for dealing with a biased intermediary and show that the efficacy of each intervention depends strongly on whether the environment exhibits congruence or conflict. We discuss how the model relates to recent issues in online markets.

Suggested Citation

  • Cornière (de), Alexandre & Taylor, Greg, 2017. "A Model of Biased Intermediation," TSE Working Papers 17-753, Toulouse School of Economics (TSE), revised Jul 2019.
    • Handle: RePEc:tse:wpaper:31324
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    References listed on IDEAS

    as
    1. Varian, Hal R, 1980. "A Model of Sales," American Economic Review, American Economic Association, vol. 70(4), pages 651-659, September.
    2. Alexandre Cornière & Greg Taylor, 2014. "Integration and search engine bias," RAND Journal of Economics, RAND Corporation, vol. 45(3), pages 576-597, September.
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    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    intermediary; bias; regulation;
    All these keywords.

    JEL classification:

    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • L15 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Information and Product Quality
    • L40 - Industrial Organization - - Antitrust Issues and Policies - - - General

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