Information Gatekeeper with Asymmetric Firms

Asymmetry exists among the firms selling homogeneous product in online market. This paper provides a theoretical study on the equilibrium behavior of the firms and the information gatekeeper in a duopoly market with asymmetric sizes of loyal consumers. In equilibrium, the firm with larger number of loyal consumers tends to advertise less frequently but charges a lower average price whenever advertising. And the optimal advertising fee charged by the information gatekeeper depends on the degree of asymmetry of the market. As the market becomes more asymmetric, the gatekeeper charges a higher advertising fee. ∗This is part of joint research work with Lan Zhang (Department of Business Economics and Public Policy, Kelley School of Business), Michael Arnold and Christine Saliba (Department of Economics, University of Delaware). †We are specially grateful to Prof. Michael Baye for his valuable advice and guidance. We thank Kyle Anderson, Alex Borisov, Xiaoxun Gao, Qi Meng, and Mayya Sengupta for their helpful comments and suggestions to improve this paper. We also thank Guoning Yang for sharing us the online pricing data. All the remaining errors are ours. ‡Department of Economics, Indiana University, Bloomington, IN, 47405. 1