Intermediaries and Quality Uncertainty: Evidence from the Hotel Industry

The authors study and test one of the possible organizational solutions to the problem of asymmetric information between sellers and buyers: sellers (firms) use intermediaries' reputations instead of their own as a way to provide credible information to potential buyers concerning the true quality of their product. More specifically, the authors test the role of intermediaries in the hotel industry as providers of reputation regarding the true quality of a hotel establishment. The empirical results support their hypotheses by showing that reliance on an intermediary (a tour operator and a travel agency) in the distribution of the capacity of accommodation of a hotel establishment is: (i) higher for high-quality hotels (which face more acute problems from asymmetric information); and (ii) lower for establishments belonging to large and reputable hotel chains (which are themselves capable of building their own reputation and brand name).