Markets with Search Frictions and Partially Informed Intermediary

Abstract

The paper discusses markets with consumer’s search frictions and partially informed intermediary. The main finding is the increase in the intermediary information might decrease the average quality of the product consumers purchase and decline the total economic welfare and consumer surplus. The mechanism is if the intermediary makes better advise to consumers in average what product to explore first, all consumers have lower expectations about the next products and explore them less often, which decreases the quality of purchased good for consumers who got the wrong recommendation and might lead to a reduction of the average quality of purchased products. This effect appears in the case of low search cost, which makes it especially important in the analysis of online search platforms.