Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/283000 
Year of Publication: 
2024
Series/Report no.: 
BERG Working Paper Series No. 190
Publisher: 
Bamberg University, Bamberg Economic Research Group (BERG), Bamberg
Abstract: 
In many markets, firms offering low-quality goods are more prominent than firms offering high-quality goods. Then, consumers are perfectly informed about the good of the prominent low-quality firm but incur search costs to bring the high-quality good of a competitor to mind. We analyze under which circumstances the less-prominent firm has an incentive to invest in high quality. We investigate two scenarios: (i) homogeneous and (ii) heterogeneous search costs. If search costs are homogeneous, the less-prominent firm produces highquality goods for sufficiently low search costs, and an increase in search costs reduces the range of values for which the less-prominent firm invests in high quality. In contrast, if search costs are heterogeneous, the less-prominent firm produces high-quality goods for sufficiently high search cost heterogeneity, and an increase in average search costs expands the range of values for which the less-prominent firm invests in high quality.
Subjects: 
consideration sets
duopoly
prominence
search costs
vertical product differentiation
JEL: 
D43
D83
L13
ISBN: 
978-3-949224-11-9
Document Type: 
Working Paper

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