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Drugs, Showrooms and Financial Products: Competition and Regulation when Sellers Provide Expert Advice

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  • Pouyet, Jérôme
  • Bardey, David
  • Gromb, Denis
  • Martimort, David

Abstract

We consider a market in which sellers can exert an information-gathering effort to advise buyers about which of two goods best fits their needs. Sellers may steer buyers towards the higher margin good. We show that for sellers to collect and reveal information, profits on both goods must be sufficiently close to each other, i.e., lie within an implementability cone, which competition or regulation may ensure. Instruments to do so vary with the context. Controlling market power while improving the quality of advice is more difficult when sellers have private information on the profitability of the goods.

Suggested Citation

  • Pouyet, Jérôme & Bardey, David & Gromb, Denis & Martimort, David, 2016. "Drugs, Showrooms and Financial Products: Competition and Regulation when Sellers Provide Expert Advice," CEPR Discussion Papers 11665, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:11665
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    Cited by:

    1. Danilo Liberati & Francesco Vercelli, 2019. "As long as the bank gains: expanding the retail distribution activity," Questioni di Economia e Finanza (Occasional Papers) 510, Bank of Italy, Economic Research and International Relations Area.

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    More about this item

    Keywords

    Mis-selling; Expertise; Retailing; Competition; Regulation; Asymmetric information;
    All these keywords.

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • I11 - Health, Education, and Welfare - - Health - - - Analysis of Health Care Markets
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L15 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Information and Product Quality
    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage

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