Consumer-Minded Informational Intermediary and Welfare Losses

This paper examines the welfare implications of third-party informational interme- diation. A seller sets the price of a product that is sold through an intermediary, who discloses information about the product to consumers. In a model where the inter- mediary is consumer-minded—has a payoff that depends on both the seller’s revenue and the consumer surplus, we show that total welfare may decrease in the Pareto sense, as the intermediary’s consumer-mindedness increases. Furthermore, we show that consumer-mindedness emerges endogenously when a revenue-maximizing interme- diary is forward-looking and the consumer base is increasing in past consumer surplus.