Measuring the Welfare of Intermediaries

Management Science

73 Pages Posted: 10 Dec 2018 Last revised: 1 Sep 2021

See all articles by Javier D. Donna

Javier D. Donna

University of Florida

Pedro Pereira

Autoridade da Concorrência

Tiago Pires

University of North Carolina (UNC) at Chapel Hill

Andre Trindade

Getulio Vargas Foundation (FGV) - FGV/EPGE Escola Brasileira de Economia e Finanças

Date Written: August 5, 2021

Abstract

We investigate the welfare of intermediaries in oligopolistic markets where intermediaries offer
additional services. We exploit the unique circumstance that in the empirical setting studied, outdoor advertising, consumers can purchase from manufacturers or intermediaries. Intermediaries provide additional services to the consumers and charge a margin for them. Intermediaries provide the following additional services: search services (information about products), purchase-aggregation services (access to quantity discounts), and consulting services. We specify an equilibrium model and structurally estimate it using market-level data. The demand includes consumers with costly search and channel-specific preferences. The supply includes two distribution channels. One features bargaining about wholesale prices between manufacturers and intermediaries, and downstream price competition. The other is vertically integrated. We show how Google-search data can be used to identify the search-cost parameters. We use the estimated model to simulate counterfactual scenarios where intermediaries do not offer additional services. We find that the three services considered provide value to consumers, with search playing a prominent role. Our analysis helps explain why intermediaries are ubiquitous in modern economies despite the double marginalization.

Keywords: D83, L42, L51, L81, M37

JEL Classification: Intermediaries, vertical integration, double marginalization, search frictions, bargaining, advertis

Suggested Citation

Donna, Javier D. and Pereira, Pedro and Pires, Tiago and Trindade, Andre, Measuring the Welfare of Intermediaries (August 5, 2021). Management Science, Available at SSRN: https://ssrn.com/abstract=3285205 or http://dx.doi.org/10.2139/ssrn.3285205

Javier D. Donna (Contact Author)

University of Florida ( email )

Gainesville, FL 32606
United States

HOME PAGE: http://www.jdonna.org/

Pedro Pereira

Autoridade da Concorrência ( email )

1050-138 Lisboa
Portugal

Tiago Pires

University of North Carolina (UNC) at Chapel Hill ( email )

102 Ridge Road
Chapel Hill, NC NC 27514
United States

Andre Trindade

Getulio Vargas Foundation (FGV) - FGV/EPGE Escola Brasileira de Economia e Finanças ( email )

Praia de Botafogo 190/1125, CEP
Rio de Janeiro RJ 22253-900
Brazil

HOME PAGE: http://https://sites.google.com/site/andretrindade/

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