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Searching for Service

Author

Listed:
  • Maarten C. W. Janssen
  • T. Tony Ke

Abstract

Since Telser (1960), there is a well-established argument that a competitive market will not provide service due to freeriding. We show that with search frictions, the market may well provide service if the cost of doing so is not too large. Any market equilibrium with service provision has two or more firms providing service, implying overprovision of service as the social optimum mandates at most one service provider. Firms that provide service and those that do not can coexist, where consumers direct their search to service providers first to obtain service, and to nonservice providers later to enjoy lower prices.

Suggested Citation

  • Maarten C. W. Janssen & T. Tony Ke, 2020. "Searching for Service," American Economic Journal: Microeconomics, American Economic Association, vol. 12(1), pages 188-219, February.
    • Handle: RePEc:aea:aejmic:v:12:y:2020:i:1:p:188-219
    DOI: 10.1257/mic.20180315
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    Citations

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    Cited by:

    1. Heski Bar-Isaac & Sandro Shelegia, 2023. "Search, Showrooming, and Retailer Variety," Marketing Science, INFORMS, vol. 42(2), pages 251-270, March.
    2. Garrod, Luke & Olczak, Matthew & Wilson, Chris M., 2020. "Price advertising, double marginalisation and vertical restraints," Economics Letters, Elsevier, vol. 196(C).
    3. Ando, Mitsuyo & Hayakawa, Kazunobu, 2022. "Impact of COVID-19 on trade in services," Japan and the World Economy, Elsevier, vol. 62(C).
    4. T. Tony Ke & Jiwoong Shin & Jungju Yu, 2023. "A Model of Product Portfolio Design: Guiding Consumer Search Through Brand Positioning," Marketing Science, INFORMS, vol. 42(6), pages 1101-1124, November.
    5. Lee, Sang M. & Lee, DonHee, 2021. "Opportunities and challenges for contactless healthcare services in the post-COVID-19 Era," Technological Forecasting and Social Change, Elsevier, vol. 167(C).
    6. Janssen, Maarten & Williams, Cole, 2021. "Influencing Search," CEPR Discussion Papers 15811, C.E.P.R. Discussion Papers.
    7. Chen, Yongmin, 2023. "Search and Competition Under Product Quality Uncertainty," MPRA Paper 116609, University Library of Munich, Germany.

    More about this item

    JEL classification:

    • D11 - Microeconomics - - Household Behavior - - - Consumer Economics: Theory
    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • L42 - Industrial Organization - - Antitrust Issues and Policies - - - Vertical Restraints; Resale Price Maintenance; Quantity Discounts
    • L81 - Industrial Organization - - Industry Studies: Services - - - Retail and Wholesale Trade; e-Commerce

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