Information Intermediaries in Monopolistic Screening

TL;DR

This paper examines how information intermediaries influence product variety, consumer welfare, and market efficiency in monopolistic screening markets, highlighting their complex impact on economic outcomes.

Contribution

It introduces a model of an intermediary biased towards high-quality products that affects product offerings and market efficiency in monopolistic screening environments.

Findings

Increased emphasis on consumer surplus by intermediaries leads to more product variety.

Greater product variety due to intermediaries can reduce overall economic efficiency.

Intermediaries significantly impact consumer welfare, market profitability, and policy considerations.

Abstract

We investigate the relationship between product offerings, information dissemination, and consumer decision-making in a monopolistic screening environment in which consumers lack information about their valuation of quality-differentiated products. An intermediary, who is driven by the objective of maximizing consumer surplus but is also biased towards high-quality products, provides recommendations after the monopolist announces the menu of product choices. We characterize the monopolist's profit-maximizing finite-item menu. Our results show that as intermediaries place greater emphasis on consumer surplus over product quality, sellers are prompted to strategically expand their product range. Intriguingly, this augmented product variety decreases economic efficiency compared to scenarios where direct seller-to-consumer information provision is the norm. The role of information intermediaries proves pivotal in shaping consumer welfare, market profitability, and overarching economic efficiency. Our insights underscore the complexities introduced by these intermediaries that policymakers and market designers must consider when designing policies centered on consumer learning and market information transparency.