Abstract. Firms simultaneously set prices in a homogeneous-product market where uninformed consumers search for price information. Some uninformed consumers are local searchers who visit only one seller, possibly due to high search costs or bounded rationality; whereas others search sequentially with an optimal reservation price. Equilibrium prices may follow a mixture distribution, with clusters of high and low prices separated by a zerodensity gap. The presence of local searchers raises prices for high-value products but can lower prices for low-value products. A reduction in search cost sometimes leads to higher equilibrium prices.
We present a model of cumulative innovation where …rms can conduct R&D in both a safe and a risky direction. Innovations in the risky direction produce quality improvements with higher expected sizes and variances. As patentability standards rise, an innovation in the risky direction is less likely to receive a patent that replaces the current technology, which decreases the static incentive for new entrants to conduct risky R&D, but increases their dynamic incentive because of the longer duration-and hence higher reward-for incumbency. These, together with a strategic substitution and a market structure e¤ect, result in an inverted-U shape in the risky direction but a U shape in the safe direction for the relationship between R&D intensity and patentability standards. There exists a patentability standard that induces the e¢ cient innovation direction, whereas R&D is biased towards (against) the risky direction under lower (higher) standards. The optimal patentability standard may distort the R&D direction to increase the industry innovation rate that is socially de…cient.
We extend Stahl's (1989) model to a setting with differentiated products to study the effects of price-directed consumer search. Consumers engage in costly search to find out whether products meet their needs. Consumer search is directed by prices when they are observable before search, in contrast to the case in which prices are discovered only after search, where search is naturally random. The equilibrium under price-directed search differs substantially from that under random search, despite certain similarities. We show that as search costs decrease, sales become more likely and firms earn higher expected profits under price-directed search, whereas the opposite holds under random search. Moreover, compared with random search, under pricedirected search firms' expected profits are always lower, but consumer surplus and total welfare are higher provided that the search cost is sufficiently small.
Abstract. The e¤ects of entry on consumer and total welfare are studied in a model of consumer search. Potential entrants di¤er in quality, with a higher-quality seller being more likely to o¤er consumers a high-value product. Contrary to the standard view in economics that more entry bene…ts consumers, we …nd that consumer welfare has an inverted-U relationship with entry cost, and free entry is excessive for both consumer and total welfare when entry cost is relatively low. We explain why these results may arise naturally in search markets due to the variety and quality e¤ects of entry, and discuss their business and policy implications.
This paper studies a model of interpersonal bundling, in which a monopolist o¤ers a good for sale under a regular price and a group purchase discount if the number of consumers in a group-the bundle size-belongs to some menu of intervals. We …nd that this is often a pro…table selling strategy in response to demand uncertainty, and it can achieve the highest pro…t among all possible selling mechanisms. We explain how the pro…tability of interpersonal bundling with a minimum or maximum group size may depend on the nature of uncertainty and on parameters of the market environment, and discuss strategic issues related to the optimal design and implementation of these bundling schemes. Our analysis sheds light on popular marketing practices such as group purchase discounts, and o¤ers insights on potential new marketing innovation.
Under continual innovation, greater patent strength expands innovating firms' profit against imitation, but also shifts profit from current to past innovators. We show how the impact of patents on innovation, as determined by these two opposing effects, varies with industry characteristics. When the discount factor is sufficiently high, the negative profit division effect is negligible, and innovation monotonically increases in patent strength; otherwise, innovation has an inverted-U relationship with patent strength, and stronger patents are more likely to increase innovation when the discount factor or the fixed innovation cost is higher. We also show how the impact of patents on innovation may change with firms' innovation capability and with the intensity of competition from imitators.
Abstract. This paper discusses how intermediaries, such as a search engine and an online marketplace, may a¤ect consumer search. We propose an analytical framework that encompasses several models of search for di¤erentiated products, with a high-quality …rm being more likely to o¤er a product that meets each consumer's need. An intermediary improves consumer search e¢ ciency by providing a search platform on which positions are sold to high-quality …rms through competitive bidding. While the intermediary may admit too many or too few …rms to its platform, compared to what would maximize consumer surplus or total welfare, its presence can nevertheless bene…t consumers and improve welfare. However, the intermediary may reduce search e¢ ciency when …rms are di¤erentiated only horizontally, when they sell experience or credence goods, or when the intermediary is biased (possibly due to vertical integration).Keywords: consumer search, intermediary, search engine, search platform, online marketplace, vertical di¤erentiation JEL Classi…cation Number: D8, L1
Abstract. This paper studies the decision of whether to apply for a patent in a dynamic model in which …rms innovate stochastically and independently. In the model, a …rm can choose between patenting and maintaining secrecy to protect a successful innovation. I consider a legal environment characterized by imperfect patent protection and no prior user rights. Thus, patenting grants probabilistic protection, and secrecy is e¤ectively maintained until rivals innovate. I show that (1) …rms that innovate early are more inclined to choose secrecy, whereas …rms that innovate late have a stronger tendency to patent; (2) the incentives to patent increase with the innovation arrival rate; and (3) an increase in the number of …rms may cause patenting to occur earlier or later, depending on the strength of patent protection. The socially optimal level of patent protection, which balances the trade-o¤ between the provision of patenting incentives and the avoidance of deadweight loss caused by a monopoly, is lower with a higher innovation arrival rate or a larger number of …rms.
scite is a Brooklyn-based organization that helps researchers better discover and understand research articles through Smart Citations–citations that display the context of the citation and describe whether the article provides supporting or contrasting evidence. scite is used by students and researchers from around the world and is funded in part by the National Science Foundation and the National Institute on Drug Abuse of the National Institutes of Health.
hi@scite.ai
10624 S. Eastern Ave., Ste. A-614
Henderson, NV 89052, USA
Copyright © 2024 scite LLC. All rights reserved.
Made with 💙 for researchers
Part of the Research Solutions Family.