Price coherence and adverse intermediation
By: Benjamin Edelman, Julian Wright
Contributors: Wright, Julian, author; Harvard Business School
Series: Working paper / Harvard Business School -- 14-052; Working paper (Harvard Business School) -- 14-052
Publisher: Harvard Business School
Published: 2013
Place of publication: Boston
Language: eng
Number of pages: 61
Description: Suppose an intermediary provides a benefit to buyers when they purchase from sellers using the intermediary's technology. We develop a model to show that the intermediary will want to restrict sellers from charging buyers more for transactions it intermediates. We show that this restriction can reduce consumer surplus and welfare, indeed sometimes to such an extent that the existence of the intermediary can be harmful. Specifically, lower consumer surplus and welfare result from inflated retail prices, over-investment in providing benefits to buyers and excessive adoption of the intermediaries services. Competition among intermediaries intensifies these problems, increasing the magnitude of their effects and also broadening the circumstances in which they arise. We discuss applications to travel reservation systems, payment card systems, marketplaces, rebate services, search engine advertising, and various types of brokers and agencies.
Notes: "December 2013"--Publisher's Web site.

Includes bibliographical references (pages 54-58).