Selling Through Referrals

47 Pages Posted: 6 May 2013  

Daniele Condorelli

University of Essex - Department of Economics

Andrea Galeotti

University of Essex

Vasiliki Skreta

University College London

Multiple version iconThere are 2 versions of this paper

Date Written: May 2013

Abstract

A seller has an object for sale and can reach buyers only through intermediaries, who also have privileged information about buyers’ valuations. Intermediaries can either mediate the transaction by buying the object and reselling it–the merchant model–or refer buyers to the seller and release information for a fee–the agency model. The merchant model suffers from double marginalization. The agency model suffers from adverse selection: Intermediaries would like to refer low-value buyers, but retain high-value ones and make profits from resale. We show that, in equilibrium, intermediaries specialize in agency. Seller’s and intermediaries’ joint profits equal the seller’s profits when he has access to all buyers and all intermediaries’ information. Profits’ division depends on seller’s and intermediaries’ relative bargaining power. Our results rationalize the prevalence of the agency model in online markets.

Keywords: asymmetric information, intermediation, agency, resale markets, referrals

Suggested Citation

Condorelli, Daniele and Galeotti, Andrea and Skreta, Vasiliki, Selling Through Referrals (May 2013). NYU Working Paper No. 2451/31774. Available at SSRN: https://ssrn.com/abstract=2260874

Daniele Condorelli (Contact Author)

University of Essex - Department of Economics ( email )

Wivenhoe Park
Colchester CO4 3SQ
United Kingdom

Andrea Galeotti

University of Essex ( email )

Wivenhoe Park
Colchester, CO4 3SQ
United Kingdom

Vasiliki Skreta

University College London ( email )

Gower Street
London, WC1E 6BT
United Kingdom

HOME PAGE: http://https://sites.google.com/site/vskreta/‎

Paper statistics

Downloads
151
Rank
160,455
Abstract Views
791