Entry and Welfare in Search Markets

Chen, Yongmin; Zhang, Tianle

doi:10.1111/ecoj.12412

Cited by 19 publications

(17 citation statements)

References 31 publications

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“…Equal profit from (a) and (c) yields (9). Moreover, (7) and (8) come from the equal-profit conditions of (a) and (b), and of (c) and (d), respectively.…”

Section: Proof Of Propositionmentioning

confidence: 98%

Price-directed consumer search

Ding

Zhang²

2018

International Journal of Industrial Organization

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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.

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“…Equal profit from (a) and (c) yields (9). Moreover, (7) and (8) come from the equal-profit conditions of (a) and (b), and of (c) and (d), respectively.…”

Section: Proof Of Propositionmentioning

confidence: 98%

Price-directed consumer search

Ding

Zhang²

2018

International Journal of Industrial Organization

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“…Wolinsky (1986) is an early contribution to the study of consumer search for horizontally di¤erentiated products (for related contributions, see, e.g., Anderson and Renault, 1999;Armstrong et al, 2009;Haan and Moraga-González, 2011;Rhodes, 2011). Recent papers have analyzed consumer search across vertically-di¤erentiated …rms (e.g., Athey and Ellison, 2011;Chen and He, 2011), under both horizontal and vertical di¤erentiation (e.g., Eliaz and Spiegler, 2011;Bar-Isaac et al, 2012;Chen and Zhang, 2018), or with investment in product quality (e.g., Fishman and Levy, 2015;Moraga-González and Sun, 2019) 4 . All of these and other studies in the search literature assume that consumers will learn all information about a product through search before making a purchase.…”

Section: Introductionmentioning

confidence: 99%

Experience Goods and Consumer Search

Chen

Zhang

2022

American Economic Journal: Microeconomics

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We introduce a search model where products differ in horizontal attributes and unobserved quality (“experience goods”), and firms can establish quality reputation. We show that the inability of consumers to observe quality before purchase significantly changes how search frictions affect market performance. In equilibrium, higher search costs reduce match values and increase price but can boost firms’ investment in product quality. Under plausible conditions, both consumer and total welfare initially increase in search cost, whereas both would monotonically decrease if quality were observable from search. We apply the analysis to online markets, where low search costs coexist with low-quality products. (JEL D11, D21, D83, L15)

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“…In a broader sense associating entry of firms with greater product availability, the paper also contributes to the literature that studies the effect of entry on competition (e.g., Janssen and Moraga-Gonzalez (2004), Chen and Riordan (2008), Gabaix et al (2016), Moraga-Gonzalez et al (2017, Chen and Zhang (2018)). The papers closest to ours are ones by Janssen and Moraga-Gonzalez (2004) and Moraga-Gonzalez et al (2017).…”

Section: Moraga-gonzalez and Watanabe (2020)mentioning

confidence: 92%

Uncertain Product Availability in Search Markets

Atayev¹

2021

Preprint

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In many markets buyers are poorly informed about which firms sell the product (product availability) and prices, and therefore have to spend time to obtain this information. In contrast, sellers typically have a better idea about which rivals offer the product. Information asymmetry between buyers and sellers on product availability, rather than just prices, has not been scrutinized in the literature on consumer search. We propose a theoretical model that incorporates this kind of information asymmetry into a simultaneous search model. Our key finding is that greater product availability may harm buyers by mitigating their willingness to search and, thus, softening competition.

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Entry and Welfare in Search Markets

Cited by 19 publications

References 31 publications

Price-directed consumer search

Price-directed consumer search

Experience Goods and Consumer Search

Uncertain Product Availability in Search Markets

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