Drugs, Showrooms and Financial Products: Competition and Regulation When Sellers Provide Expert Advice

51 Pages Posted: 29 Nov 2016

See all articles by David Bardey

David Bardey

Universidad de los Andes, Colombia - Department of Economics

Denis Gromb

HEC Paris

David Martimort

Paris School of Economics (PSE)

Jérôme Pouyet

Paris School of Economics (PSE)

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Date Written: November 2016

Abstract

We consider a market in which sellers can exert an information-gathering effort to advise buyers about which of two goods best fits their needs. Sellers may steer buyers towards the higher margin good. We show that for sellers to collect and reveal information, profits on both goods must be sufficiently close to each other, i.e., lie within an implementability cone, which competition or regulation may ensure. Instruments to do so vary with the context. Controlling market power while improving the quality of advice is more difficult when sellers have private information on the profitability of the goods.

Keywords: asymmetric information, Competition, Expertise, Mis-Selling, regulation, Retailing

JEL Classification: D82, G24, I11, L13, L15, L51

Suggested Citation

Bardey, David and Gromb, Denis and Martimort, David and Pouyet, Jérôme, Drugs, Showrooms and Financial Products: Competition and Regulation When Sellers Provide Expert Advice (November 2016). CEPR Discussion Paper No. DP11665, Available at SSRN: https://ssrn.com/abstract=2877270

David Bardey (Contact Author)

Universidad de los Andes, Colombia - Department of Economics ( email )

Carrera 1a No. 18A-10
Santafe de Bogota, AA4976
Colombia

Denis Gromb

HEC Paris

1 rue de la Liberation
Jouy-en-Josas Cedex, 78351
France

David Martimort

Paris School of Economics (PSE) ( email )

48 Boulevard Jourdan
Paris, 75014 75014
France

Jérôme Pouyet

Paris School of Economics (PSE) ( email )

48 Boulevard Jourdan
Paris, 75014 75014
France

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