This paper develops a new framework for studying multiproduct intermediaries. We show that a multiproduct intermediary is profitable even when it does not improve efficiency in selling products. In its optimal product selection, it stocks high-value products exclusively to attract consumers, then profits by selling non-exclusive products which are relatively cheap to buy from upstream suppliers. However, relative to the social optimum, the intermediary tends to be too big and stock too many products exclusively. The study establishes a link between product selection and product demand features such as size, shape and elasticity. As an application of the framework, the study also looks at the impact of direct-to-consumer sales by upstream suppliers on the intermediary’s product range and profitability.
Andrew Rhodes is an Assistant Professor at the Toulouse School of Economics. He studied as an undergraduate at the University of Cambridge, and as a graduate at the University of Oxford. He is currently a CEPR Research Fellow (IO) and an Associate Editor of the International Journal of Industrial Organization and the Journal of Industrial Economics.