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Do Lower Search Costs Benefit Intermediaries?

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  • Muxin Li

    (Bocconi University)

Abstract

Intermediaries—such as Amazon, Alibaba Group, and Walmart—play critical roles in digital markets: This paper proposes a model for analyzing how search cost affects their market outcomes. Distinguished from existing search literature, we introduce network effects to the market by allowing buyers to have positive preferences for product variety. In addition, we relax the exogenous demand and supply assumptions in the conventional search literature to study how search affects participation on both sides of the market. Through the model, we focus on studying and comparing two important types of intermediary: the two-sided platform; and the one-sided retailer. We find that reducing search costs does not necessarily increase the profit of both intermediary types. Furthermore, its influences are highly varied—depending on both the type of intermediary and its buyers’ preferences for variety.

Suggested Citation

  • Muxin Li, 2023. "Do Lower Search Costs Benefit Intermediaries?," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 63(3), pages 373-405, November.
    • Handle: RePEc:kap:revind:v:63:y:2023:i:3:d:10.1007_s11151-023-09921-1
    DOI: 10.1007/s11151-023-09921-1
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    More about this item

    Keywords

    Consumer search; E-commerce; Intermediary; Two-sided markets;
    All these keywords.

    JEL classification:

    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance
    • L2 - Industrial Organization - - Firm Objectives, Organization, and Behavior
    • L8 - Industrial Organization - - Industry Studies: Services

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