Competition between Captive Consumers and Sales Channels

We investigate strategic interactions in marketplaces where companies sell to customers both directly and through a competitive channel, such as a price comparison website or marketplace, where numerous vendors' offers are displayed at the same time. When certain consumers have inadequate price information, we investigate how the size of a competing channel affects market outcomes. A larger competitive channel means more consumers will compare prices, resulting in more rivalry within the channel. However, we show that, by decreasing between-channel competition, such ostensibly pro-competitive changes can boost prices and hurt consumers.