DP11665 Drugs, Showrooms and Financial Products: Competition and Regulation when Sellers Provide Expert Advice

Author(s): David Bardey, Denis Gromb, David Martimort, Jérôme Pouyet
Publication Date: November 2016
Keyword(s): asymmetric information, Competition, Expertise, Mis-Selling, regulation, Retailing
JEL(s): D82, G24, I11, L13, L15, L51
Programme Areas: Industrial Organization
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=11665

We consider a market in which sellers can exert an information-gathering effort to advise buyers about which of two goods best fits their needs. Sellers may steer buyers towards the higher margin good. We show that for sellers to collect and reveal information, profits on both goods must be sufficiently close to each other, i.e., lie within an implementability cone, which competition or regulation may ensure. Instruments to do so vary with the context. Controlling market power while improving the quality of advice is more difficult when sellers have private information on the profitability of the goods.