Optimal Two-Sided Information Provision by Market Intermediaries and Its Consequences

Project: Research

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Description

In many real-world markets, products and services are not sold directly from producers to consumers but instead pass through intermediaries. In the information era, market intermediaries collect a large amount of consumer data, such as personal characteristics and purchase histories. The consumer data, if disclosed to producers, can help producers develop better predictions of consumer demand than those obtained through traditional means. At the same time, with advanced information technology, the intermediaries can help the producers determine how best to display product information on their platforms to consumers and, therefore, affect how consumers learn about products. Consequently, these intermediaries provide valuable two-sided information provision service to producers and can sell the service as products to producers. For instance, Amazon discloses a significant amount of consumer information to sellers and helps sellerspresent product information to consumers via photos, certificates, descriptions, and reviews; both services are priced and sold to sellers through subscription options in the Amazon Seller Central.In the proposed project, I will study the optimal mechanism for two-sided information provision by the intermediaries described above. Several previous papers, including one coauthored by the PI, have studied the optimal design of intermediaries that provide information to either only the consumers or only the producers. In this project, in contrast, I will consider two-sided information provision by an intermediary--a more realistic environment in which the intermediary provides information to both producers and consumers.More specifically, I will characterize the optimal mechanism for selling two-sided information for an intermediary and study the market equilibrium outcomes. First, I will consider a market regime in which the intermediary does not play an active role in the trading of products, except that it provides information to consumers and producers and sell the service as products to producers. The mechanism design problem for such intermediaries involves a high-dimensional allocation space without single-crossing preferences. Preliminary results have been developed to simplify the representation of two-sided information structures. In the proposed research, I will develop tools to further simplify the problem and fully characterize the optimal mechanism. I will also study other market regimes. For example, I will consider environments in which the intermediaries, in addition to providing information, can actively participate in the pricing of products. The theoretical exercises would help us understand how different market arrangements affect the two-sided information provision by intermediaries and guide the regulation of these intermediaries in practice.

Detail(s)

Project number9043440
Grant typeGRF
StatusActive
Effective start/end date1/01/23 → …