We study situations in which consumers rely on a biased intermediary’s advice when choosing among sellers. We introduce the notion that sellers’ and consumers’ payoﬀs can be congruent or conﬂicting, and show that this has important implications for the eﬀects of bias. Under congruence, the ﬁrm beneﬁting from bias has an incentive to oﬀer a better deal than its rival and consumers can be better-oﬀ than under no bias. Under conﬂict, the favored ﬁrm oﬀers lower utility and bias harms consumers. We study various policies for dealing with bias and show that their eﬃcacy also depends on whether the payoﬀs exhibit congruence or conﬂict.
The RAND Journal of Economics, 2020, forthcoming