Working Paper: CEPR ID: DP14454
Authors: Josluis Moragagonzalez; Zsolt Sandor; Matthijs Wildenbeest
Abstract: This paper extends the literature on simultaneous search by allowing for differentiated products and consumer search cost heterogeneity. In a duopolistic market, consumers with sufficiently low search costs choose to inspect the products of the two firms and purchase, if any, the most suitable; consumers with higher search costs choose to examine just one of the products; consumers with prohibitively high search costs do not check any of the products and drop out of the market altogether. We show conditions under which a symmetric price equilibrium always exists. We provide a necessary and sufficient condition on the search cost distribution under which an increase in the costs of search of all consumers may result in a lower, equal or higher equilibrium price. We extend this analysis to the case with more than two firms. The effects of prominence on equilibrium prices are also studied. The prominent firm charges a higher price than the non-prominent firm and both their prices are below the symmetric equilibrium price. Consequently, with simultaneous search, market prominence increases the surplus of consumers.
Keywords: Nonsequential search; Simultaneous search; Oligopoly; Search cost heterogeneity; Differentiated products; Nonuniform sampling; Prominence
JEL Codes: D43; C72
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| search costs (D23) | equilibrium prices (D41) |
| search costs (D23) | consumer surplus (D46) |
| firm prominence (L14) | equilibrium prices (D41) |
| equilibrium prices (D41) | consumer surplus (D46) |
| search costs (D23) | intensive search margin (C24) |
| search costs (D23) | extensive search margin (R12) |
| elasticity of demand (D12) | pricing strategies (D49) |