Working paper

Multiproduct Intermediaries and Optimal Product Range

Andrew Rhodes, Makoto Watanabe, and Jidong Zhou

Abstract

This paper develops a framework for studying the optimal product range choice of a multiproduct intermediary when consumers demand multiple products. In the optimal product selection, the intermediary uses exclusively stocked high-value products to increase store tra¢ c, and at the same time earns pro?t mainly from non-exclusively stocked products which are relatively cheap to buy from upstream suppliers. By doing this the intermediary can earn strictly positive pro?t, including in situations where it does not improve e¢ ciency in selling products. A linkage between product selection and product demand features such as size and shape is established. It is also shown that relative to the social optimum, the intermediary tends to be too big and stock too many products exclusively.

Keywords

intermediaries; product range; multiproduct demand; search; exclusive contracts;

JEL codes

  • D83: Search • Learning • Information and Knowledge • Communication • Belief
  • L42: Vertical Restraints • Resale Price Maintenance • Quantity Discounts
  • L81: Retail and Wholesale Trade • e-Commerce

Reference

Andrew Rhodes, Makoto Watanabe, and Jidong Zhou, Multiproduct Intermediaries and Optimal Product Range, TSE Working Paper, n. 17-857, October 2017.

See also

Published in

TSE Working Paper, n. 17-857, October 2017