A model of directed consumer search

Abstract

We present a framework to study directed consumer search. Firms sell products with two attributes. One is readily observable, the other is observed only after visiting a firm. Search is directed as the order of search is influenced by the observ-R We are very grateful to Régis Renault, the Editor, and two anonymous referees for their constructive comments and suggestions. Previous versions of this paper circulated as "Consumer Search with Observable

Consumer Search and Price Competition

“…is to show that this result holds in a more general environment by adopting the indirect approach explained above. As argued and explained in more detail by Haan, Moraga-González, and Petrikaite (2017), this result is consistent with some recent empirical findings. For example, Moraga-González, Sándor, and Wildenbeest (2015) structurally estimated a consumer search model using data from the Dutch automobile market, where price information is believed to be easily accessible, and found that reducing inspection costs led to higher prices for some car models.…”

“…As argued and explained in more detail by Haan, Moraga-González, and Petrikaite (2017), this result is consistent with some recent empirical findings. As argued and explained in more detail by Haan, Moraga-González, and Petrikaite (2017), this result is consistent with some recent empirical findings.…”

“…To begin with, it is infeasible to establish the existence of market equilibrium (let alone its uniqueness) with an elementary method: the sellers' best response functions are hard to derive and, even if they can be derived, do not behave well in general (see Haan, Moraga-González, and Petrikaite (2017)). The reformulation is useful by itself, because it annihilates the need to keep track of different purchase paths.…”

“…Price-directed consumer search has been studied by three recent papers, Armstrong and Zhou (2011), Shen (2015), and Haan, Moraga-González, and Petrikaite (2017). Whereas these papers produce several novel insights, each of them confines its analysis to a symmetric duopoly environment, 3 mainly because of the complexity of consumer search behavior and resulting complication of demand analysis.…”

“…More importantly, it enables us to apply rich existing results on discrete-choice models to our search model. To begin with, it is infeasible to establish the existence of market equilibrium (let alone its uniqueness) with an elementary method: the sellers' best response functions are hard to derive and, even if they can be derived, do not behave well in general (see Haan, Moraga-González, and Petrikaite (2017)). However, based on a general result in the discrete-choice literature, we provide sufficient conditions under which there exists a unique market equilibrium, which is in pure strategies.…”