Price coherence and excessive intermediation
By: Benjamin Edelman, Julian Wright
Contributors: Wright, Julian, author; Harvard Business School
Series: Working paper / Harvard Business School -- 15-030; Working paper (Harvard Business School) -- 15-030
Publisher: Harvard Business School
Published: 2014
Place of publication: Boston]
Language: eng
Number of pages: 44
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 would want to restrict sellers from charging buyers more for transactions it intermediates. With this restriction an intermediary can profitably raise demand for its services by eliminating any extra price buyers face for purchasing through the intermediary. We show that this leads to inflated retail prices, excessive adoption of the intermediaries' services, over-investment in benefits to buyers, and a reduction in consumer surplus and sometimes welfare. Competition among intermediaries intensifies these problems by increasing the magnitude of their effects and broadening the circumstances in which they arise. We discuss applications to payment card systems, travel reservation systems, rebate services, and various other intermediaries.
Notes: "October 2014" -- Publisher's website.

Includes bibliographical references (pages 35-38, A18-A24, B30)