Measuring the Welfare of Intermediaries in Vertical Markets
67 Pages Posted: 10 Dec 2018 Last revised: 5 Oct 2020
Date Written: May 18, 2019
We empirically investigate the welfare of intermediaries in oligopolistic markets, where intermediaries offer additional services. We exploit the unique circumstance that, in our empirical setting, consumers can purchase from manufacturers or intermediaries. We specify an equilibrium model, and estimate it using product-level data. The demand includes consumers with costly search and channel-specific preferences. The supply includes two distribution channels. One features bargaining about wholesale prices between manufacturers and intermediaries, and price competition among intermediaries. The other is vertically integrated. The model is used to simulate counterfactuals, where intermediaries do not offer additional services. We find that intermediaries increase welfare.
Keywords: L81, L42, D83, M37
JEL Classification: Intermediaries, vertical markets, search frictions, bargaining, outdoor advertising
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