Referral infomediaries

A n interesting phenomenon has been the emergence of ‘‘infomediaries’ ’ in the form ofInternet referral services in many markets. These services offer consumers the oppor-tunity to get price quotes from enrolled brick-and-mortar retailers and direct consumer traffic to particular retailers who join them. This paper analyzes the effect of referral info-mediaries on retail markets and examines the contractual arrangements that they should use in selling their services. We identify the conditions necessary for the infomediary to ex-ist and explain how they would evolve with the growth of the Internet. The role of an info-mediary as a price discrimination mechanism leads to lower online prices. Perhaps the most interesting result is that the referral infomediary can unravel (i.e., no retailer can get any net profit gain from joining) when its reach becomes too large. The analysis also shows why referral infomediaries would prefer to offer geographical exclusivity to joining re-tailers