Multiproduct Intermediaries and Optimal Product Range

54 Pages Posted: 24 Oct 2017

See all articles by Andrew Rhodes

Andrew Rhodes

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

Makoto Watanabe

Vrije Universiteit Amsterdam, School of Business and Economics

Jidong Zhou

University College London - Department of Economics

Date Written: October 20, 2017

Abstract

This paper develops a framework for studying the optimal product range choice of a multiproduct intermediary when consumers demand multiple products. In the optimal product selection, the intermediary uses exclusively stocked high-value products to increase store traffic, and at the same time earns profit mainly from non-exclusively stocked products which are relatively cheap to buy from upstream suppliers. By doing this the intermediary can earn strictly positive profit, including in situations where it does not improve efficiency in selling products. A linkage between product selection and product demand features such as size and shape is established. It is also shown that relative to the social optimum, the intermediary tends to be too big and stock too many products exclusively.

Keywords: Intermediaries, Product Range, Multiproduct Demand, Search, Exclusive Contracts

JEL Classification: D83, L42, L81

Suggested Citation

Rhodes, Andrew and Watanabe, Makoto and Zhou, Jidong, Multiproduct Intermediaries and Optimal Product Range (October 20, 2017). Available at SSRN: https://ssrn.com/abstract=3057590 or http://dx.doi.org/10.2139/ssrn.3057590

Andrew Rhodes (Contact Author)

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

Place Anatole-France
Toulouse Cedex, F-31042
France

Makoto Watanabe

Vrije Universiteit Amsterdam, School of Business and Economics ( email )

De Boelelaan 1105
Amsterdam, 1081HV
Netherlands

Jidong Zhou

University College London - Department of Economics ( email )

Gower Street
London, WC1E 6BT
United Kingdom

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