Intermediation and Steering: Competition in Prices and Commissions
- American Economic Journal: Microeconomics (Forthcoming)
We explore the implications of steering by an informed profit-
maximizing intermediary. The intermediary steers consumers by
recommending firms taking into account both the commissions
firms offer and the prices they set. Such steering results in higher
commissions and consumer prices, so that consumers only benefit from intermediation when their search cost is sufficiently high.
Steering reverses the normal relationship between competition and
price, with prices increasing in the number of competing firms. We
use the framework to study various policies including commission
caps (absolute or relative), commission disclosure, promoting information provision, and penalties for inappropriate advice.
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