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Endogenous Availability in Search Equilibrium

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  • Andrew F. Daughety
  • Jennifer F. Reinganum

Abstract

Strategic variables (such as availability) can be used to increase customers' search costs, thus increasing the price that can be supported in equilibrium. Customers can "purchase" bargaining power by shopping at two firms and then bringing those firms into competition with one another. Knowing this, firms adjust quoted prices to keep customers from exercising this option. We compare equilibrium prices and availability, firm profits, and customer welfare under duopoly with those that would obtain under monopoly. We find that for low levels of (exogenous) customer search costs, duopolists provide lower prices and lower availability, while for high customer search costs, duopolists provide the same price but greater availability than would a monopolist.

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Bibliographic Info

Article provided by The RAND Corporation in its journal RAND Journal of Economics.

Volume (Year): 22 (1991)
Issue (Month): 2 (Summer)
Pages: 287-306

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Handle: RePEc:rje:randje:v:22:y:1991:i:summer:p:287-306

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Cited by:
  1. Andrew F. Daughety & Jennifer F. Reinganum, 2011. "Search, Bargaining, And Agency in the Market for Legal Services," Vanderbilt University Department of Economics Working Papers 1106, Vanderbilt University Department of Economics.
  2. Dana, James D, Jr, 2001. "Competition in Price and Availability When Availability is Unobservable," RAND Journal of Economics, The RAND Corporation, vol. 32(3), pages 497-513, Autumn.

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