Asymmetric Information and Delegated Selling

32 Pages Posted: 23 Dec 2020

See all articles by Maarten Janssen

Maarten Janssen

University of Vienna

Santanu Roy

Southern Methodist University (SMU) - Department of Economics

Date Written: December 1, 2020

Abstract

Asymmetric information about product quality can create incentives for a privately informed manufacturer to sell to uninformed consumers through a retailer and to maintain secrecy of upstream pricing. Delegating retail price setting to an intermediary generates pooling equilibria that avoid signaling distortions associated with direct selling even under reasonable restrictions on beliefs; these beliefs can also prevent double marginalization by the retailer. Expected profit, consumer surplus and social welfare can all be higher with intermediated selling. However, if secrecy of upstream pricing cannot be maintained, selling through a retailer can only lower the expected profit of the manufacturer.

JEL Classification: D43, D82, L13, L15

Suggested Citation

Janssen, Maarten and Roy, Santanu, Asymmetric Information and Delegated Selling (December 1, 2020). CEPR Discussion Paper No. DP15537, Available at SSRN: https://ssrn.com/abstract=3753937

Maarten Janssen (Contact Author)

University of Vienna ( email )

Bruenner Strasse 72
Vienna, Vienna 1090
Austria

Santanu Roy

Southern Methodist University (SMU) - Department of Economics ( email )

Dallas, TX 75275
United States

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