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Controlling Sellers Who Provide Advice: Regulation and Competition*
Author(s) -
Bardey David,
Gromb Denis,
Martimort David,
Pouyet Jérôme
Publication year - 2020
Publication title -
the journal of industrial economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.93
H-Index - 77
eISSN - 1467-6451
pISSN - 0022-1821
DOI - 10.1111/joie.12228
Subject(s) - monopoly , competition (biology) , private information retrieval , incentive , business , microeconomics , advice (programming) , margin (machine learning) , information good , cheap talk , information asymmetry , industrial organization , economics , the internet , computer security , computer science , ecology , machine learning , programming language , biology , world wide web
A monopoly seller advising buyers about which of two goods fits their needs may be tempted to recommend the higher margin good. For the seller to collect information about a buyer’s needs and provide truthful advice, the profits from selling both goods must be similar enough, i.e ., within an implementability cone . The optimal regulation controls pricing distortions and information‐collection incentives separately via price regulation and fixed rewards respectively. This no longer holds when the seller has private information about costs as both problems interact. We study whether competition and the threat by buyers to switch sellers can substitute for regulation.