Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/273686 
Year of Publication: 
2022
Series/Report no.: 
Working Papers in Economics and Statistics No. 2022-14
Publisher: 
University of Innsbruck, Research Platform Empirical and Experimental Economics (eeecon), Innsbruck
Abstract: 
Especially in many online markets, consumers can readily observe prices, but may need to further inspect products to assess their suitability. We study the effects of product differentiation and search costs on competition and market outcomes in a tractable model of price-directed consumer search. We find that (i) firms' equilibrium pricing always induces efficient search behavior, (ii) for relatively large product differentiation, welfare distortions still occur because some consumers (may) forgo consumption, and (iii) lower search costs lead to stochastically higher prices, increasing firms' expected profits and decreasing their frequency of sales. Consumer surplus often falls when search costs decrease.
Subjects: 
Consumer Search
Price-Directed Search
Product Differentiation
Price Competition
Mixed-Strategy Pricing
Search Costs
JEL: 
D43
D83
L13
Document Type: 
Working Paper

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