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Dr. Daniele Condorelli

University of Essex, United Kingdom

Authors: Daniele Condorelli, Andrea Galeotti, and Vasiliki Skreta

Abstract: We study referrals in a model of intermediated trade with asymmetric information. A seller has an object for sale, but can only reach customers through intermediaries. Intermediaries also have privileged information about consumers' valuations. Intermediaries can refer their buyers to the seller and release some information about them in exchange for a referral payment. Or they can choose to mediate the transaction by buying the object and resell it.  We show that, if the seller is free to pick any selling mechanisms, then whenever referral fees are positive intermediaries refer all their buyers and report all their information to the seller. Hence, referrals overcome standard intermediation inefficiencies. When the seller has the power to initiate referral contracts, the seller extracts all efficiency gains induced by referrals; otherwise, intermediaries retain some of the surplus. Finally, we show that intermediated trade and referral may coexist when additional frictions are introduced.

Full Text:   WILL BE AVAILABLE IN HARD COPIES IN THE SEMINAR ROOM (#6, 2nd floor)