Condorelli, Daniele, Galeotti, Andrea and Skreta, Vasiliki (2018) Selling through referrals. Journal of Economics & Management Strategy, 27 (4). pp. 669-685. doi:10.1111/jems.12251 ISSN 1058-6407.

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Abstract

We endogenize intermediaries' choice to operate as agents or merchants in a market where there are frictions due to asymmetric information about consumption values. A seller has an object for sale and can reach buyers only through intermediaries. Intermediaries can either mediate the transaction by buying and reselling—the merchant mode—or refer buyers to the seller for a fee—the referral mode. When the seller has a strong bargaining position and can condition the asking price to the intermediaries' business model choice, all intermediaries specialize in agency. The seller's and intermediaries' joint profits equal the seller's profits when he has access to all buyers. When the seller does not have such bargaining power, the level of the referral fee and the degree of competition among intermediaries determine the business mode adoption. A hybrid agency–merchant mode may be adopted in equilibrium. Banning the referral mode can decrease welfare because the merchant mode is associated with additional allocative distortions due to asymmetric information.

Item Type:	Journal Article
Subjects:	H Social Sciences > HF Commerce H Social Sciences > HG Finance
Divisions:	Faculty of Social Sciences > Economics
Library of Congress Subject Headings (LCSH):	Business referrals, Information asymmetry, Intermediation (Finance)
Journal or Publication Title:	Journal of Economics & Management Strategy
Publisher:	Wiley-Blackwell Publishing, Inc.
ISSN:	1058-6407
Official Date:	26 October 2018
Dates:	Date Event 26 October 2018 Published 11 May 2018 Available 13 April 2018 Accepted
Volume:	27
Number:	4
Page Range:	pp. 669-685
DOI:	10.1111/jems.12251
Status:	Peer Reviewed
Publication Status:	Published
Reuse Statement (publisher, data, author rights):	This is the peer reviewed version of the following article: Condorelli, D, Galeotti, A, Skreta, V. Selling through referrals. J Econ Manage Strat. 2018; 27: 669– 685. https://doi.org/10.1111/jems.12251, which has been published in final form at http://dx.doi.org/10.1111/jems.12251. This article may be used for non-commercial purposes in accordance with Wiley Terms and Conditions for Use of Self-Archived Versions.
Access rights to Published version:	Restricted or Subscription Access
Date of first compliant deposit:	22 January 2020
Date of first compliant Open Access:	11 May 2020
RIOXX Funder/Project Grant:	Project/Grant ID RIOXX Funder Name Funder ID ERC-starting grant / 283454 European Research Council http://dx.doi.org/10.13039/501100000781 ERC-consolidator grant / 724356 European Research Council http://dx.doi.org/10.13039/501100000781 Philip Leverhulme Prize Leverhulme Trust http://dx.doi.org/10.13039/501100000275 Frontiers in Design European Research Council http://dx.doi.org/10.13039/501100000781

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