Why Do Intermediaries Divert Search?

36 Pages Posted: 30 Aug 2007 Last revised: 8 May 2010

See all articles by Andrei Hagiu

Andrei Hagiu

Boston University - Questrom School of Business

Bruno Jullien

University of Toulouse 1 - Toulouse School of Economics (TSE); Centre for Economic Policy Research (CEPR); CESifo (Center for Economic Studies and Ifo Institute)

Date Written: May 7, 2010

Abstract

We analyze the incentives to divert search for an information intermediary who enables buyers (consumers) to search affiliated sellers (stores). We identify two original motives for diverting search (i.e. inducing consumers to search more than they would like): i) trading off higher total consumer traffic for higher revenues per consumer visit; ii) influencing stores’ choices of strategic variables (e.g. pricing) once they have decided to affiliate. We characterize the conditions under which there would be no role for search diversion as a strategic instrument for the intermediary, thereby showing that it occurs even when the contracting space is significantly enriched. We then discuss several applications related to on-line and brick-and-mortar intermediaries.

Keywords: Market Intermediation, Search, Two-Sided Markets, Platform Design.

JEL Classification: L1, L2, L8

Suggested Citation

Hagiu, Andrei and Jullien, Bruno, Why Do Intermediaries Divert Search? (May 7, 2010). Strategy Unit Working Paper No. 08-010, Available at SSRN: https://ssrn.com/abstract=1010682 or http://dx.doi.org/10.2139/ssrn.1010682

Andrei Hagiu (Contact Author)

Boston University - Questrom School of Business ( email )

595 Commonwealth Avenue
Boston, MA MA 02215
United States

Bruno Jullien

University of Toulouse 1 - Toulouse School of Economics (TSE) ( email )

Place Anatole-France
Toulouse Cedex, F-31042
France

Centre for Economic Policy Research (CEPR)

London
United Kingdom

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

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