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Discussion Paper Details

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Title: Controlling Sellers Who Provide Advice: Regulation and Competition

Author(s): David Bardey, Denis Gromb, David Martimort and Jérôme Pouyet

Publication Date: February 2019

Keyword(s): asymmetric information, Expertise, Mis-Selling and regulation

Programme Area(s): Industrial Organization

Abstract: A monopoly seller advises buyers about which of two goods best fits their needs but may be tempted to steer buyers towards the higher margin good. For the seller to collect information about a buyer's needs and provide truthful advice, the profits from selling both goods must lie within an implementability cone. In the optimal regulation, pricing distortions and information-collection incentives are controlled separately by price regulation and fixed rewards respectively. This no longer holds when the seller has private information about costs as both problems interact. We study the extent to which competition and the threat by buyers to switch sellers can substitute for regulation.

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Bibliographic Reference

Bardey, D, Gromb, D, Martimort, D and Pouyet, J. 2019. 'Controlling Sellers Who Provide Advice: Regulation and Competition'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=13543