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Discussion Paper Details

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Title: Asymmetric Information and Delegated Selling

Author(s): Maarten Janssen and Santanu Roy

Publication Date: December 2020

Keyword(s): asymmetric information, delegation, intermediary, product quality and signaling

Programme Area(s): Industrial Organization

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.

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Bibliographic Reference

Janssen, M and Roy, S. 2020. 'Asymmetric Information and Delegated Selling'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=15537