Skip navigation

Selling Through Referrals

Authors: Condorelli, Daniele
Galeotti, Andrea
Skreta, Vasiliki
Keywords: asymmetric information, intermediation, agency;resale markets, referrals
Issue Date: 3-May-2013
Abstract: A seller has an object for sale and can reach buyers only through intermediaries, who also have privileged information about buyers’ valuations. Intermediaries can either mediate the transaction by buying the object and reselling it–the merchant model–or refer buyers to the seller and release information for a fee–the agency model. The merchant model suffers from double marginalization. The agency model suffers from adverse selection: Intermediaries would like to refer low-value buyers, but retain high-value ones and make profits from resale. We show that, in equilibrium, intermediaries specialize in agency. Seller’s and intermediaries’ joint profits equal the seller’s profits when he has access to all buyers and all intermediaries’ information. Profits’ division depends on seller’s and intermediaries’ relative bargaining power. Our results rationalize the prevalence of the agency model in online markets.
Rights: Copyright Condorelli, Galeotti, and Skreta, May 2013.
Appears in Collections:Economics Working Papers

Files in This Item:
File Description SizeFormat 
Skreta_Referrals_May2013.pdfSelling Through Referrals442.4 kBAdobe PDFView/Open

Items in FDA are protected by copyright, with all rights reserved, unless otherwise indicated.