Article | RAND Journal of Economics | summer 2011

Why Do Intermediaries Divert Search?

by Andrei Hagiu and Bruno Jullien

Abstract

We analyze the incentives to divert search for an information intermediary who enables buyers (consumers) to search affiliated sellers (stores). We identify two original motives for diverting search (i.e., inducing consumers to search more than they would like): 1) trading off higher total consumer traffic for higher revenues per consumer visit and 2) influencing stores' choices of strategic variables (e.g., pricing). We characterize the conditions under which there would be no role for search diversion as a strategic instrument for the intermediary, thereby showing that it occurs even when the contracting space is significantly enriched. We then discuss several applications related to online and brick-and-mortar intermediaries.

Keywords: market intermediation; search; Two-Sided Markets; platform design; Demand and Consumers; Motivation and Incentives; Online Technology; Search Technology; Two-Sided Platforms; Distribution Channels; Business Strategy; Retail Industry;

Citation:

Hagiu, Andrei, and Bruno Jullien. "Why Do Intermediaries Divert Search?" RAND Journal of Economics 42, no. 2 (summer 2011): 337–362. (2012 Winner for Best Paper on Competition Economics, Association of Competition Economics.)