Search Diversion, Rent Extraction and Competition

This paper studies search diversion by competing intermediaries connecting consumers with third-party stores. First, we show that endogenizing store entry leads to more search diversion when intermediaries cannot price discriminate among stores because the intermediaries’ incentives are aligned with the marginal stores. Second, competition among intermediaries may lead to more or less search diversion relative to monopoly, depending on whether consumers multihome and stores singlehome or vice-versa.