Selling Through Referrals

32 Pages Posted: 22 May 2017

See all articles by Daniele Condorelli

Daniele Condorelli

University of Essex - Department of Economics

Andrea Galeotti

University of Essex

Vasiliki Skreta

University of Texas at Austin - Department of Economics; University College London

Multiple version iconThere are 2 versions of this paper

Date Written: May 2017

Abstract

We endogenize intermediaries' choice to operate as agents or merchants in a market where there are frictions due to asymmetric information about consumption values. A seller has an object for sale and can reach buyers only through intermediaries. Intermediaries can either mediate the transaction by buying and reselling - the merchant mode - or refer buyers to the seller for a fee - the agency mode. When the seller can condition the minimum selling price to the intermediaries' business model choice, all intermediaries specialize in agency. The seller's and intermediaries' joint profits equal the seller's profits when he has access to all buyers. When the seller's trading protocol does not depend on the business mode adopted by intermediaries, hybrid agency-merchant mode are adopted in equilibrium. Banning the agency mode can decrease welfare since the merchant mode is associated with additional allocative distortions due to asymmetric information compared to agency.

Keywords: asymmetric information, intermediaries, referrals, resale

JEL Classification: C72, D44

Suggested Citation

Condorelli, Daniele and Galeotti, Andrea and Skreta, Vasiliki, Selling Through Referrals (May 2017). Available at SSRN: https://ssrn.com/abstract=2971909

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 of Texas at Austin - Department of Economics ( email )

Austin, TX 78712
United States

HOME PAGE: http://vskreta.wixsite.com/vskreta

University College London ( email )

Gower Street
London, WC1E 6BT
United Kingdom

HOME PAGE: http://vskreta.wixsite.com/vskreta

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