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Pricing, Consumer Search and the Size of Internet Markets


Author Info

  • Maarten C.W. Janssen

    (Erasmus University Rotterdam)

  • Jose Luis Moraga

    (Groningen University)


Despite the mixed empirical evidence, many economists stillhold to the view that Internet will promote competition betweenfirms,thereby lowering prices and increasing economic welfare. This paperpresents a search model that provides a different view. We analyzethemarket for a homogeneous good where some consumers are fully informedwhile others are not. Depending on the parameter values, there may bethree types of equilibria and the comparative statics results aredifferent for each of these equilibria. For example, a reduction insearch cost may raise equilibrium prices when consumers' searchintensity is low, but reduce prices when consumers search intensityis high. These different comparative statics results may explain themixed empirical evidence found so far.

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Bibliographic Info

Paper provided by Tinbergen Institute in its series Tinbergen Institute Discussion Papers with number 00-042/1.

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Date of creation: 17 May 2000
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Handle: RePEc:dgr:uvatin:20000042

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Keywords: Internet; price dispersion; search; search agents;

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Cited by:
  1. Glenn Ellison & Sara Fisher Ellison, 2009. "Search, Obfuscation, and Price Elasticities on the Internet," Econometrica, Econometric Society, Econometric Society, vol. 77(2), pages 427-452, 03.
  2. Boone, Jan & Pottersz, Jan, 2006. "Transparency and prices with imperfect substitutes," Economics Letters, Elsevier, Elsevier, vol. 93(3), pages 398-404, December.
  3. Maarten C.W. Janssen & Rob van der Noll, 2005. "Internet Retailing as a Marketing Strategy," Tinbergen Institute Discussion Papers, Tinbergen Institute 05-038/1, Tinbergen Institute.
  4. Martin Sefton & John Morgan, 2001. "Information externalities in a model of sales," Economics Bulletin, AccessEcon, vol. 4(7), pages 1-5.
  5. Michael R. Baye & John Morgan, 2004. "Price Dispersion in the Lab and on the Internet: Theory and Evidence," RAND Journal of Economics, The RAND Corporation, vol. 35(3), pages 448-466, Autumn.
  6. Galeotti, Andrea, 2005. "Consumers networks and search equilibria," Working Papers, California Institute of Technology, Division of the Humanities and Social Sciences 1225, California Institute of Technology, Division of the Humanities and Social Sciences.
  7. Michael R. Baye & John Morgan & Patrick Scholten, 2006. "Persistent Price Dispersion in Online Markets," Working Papers, Indiana University, Kelley School of Business, Department of Business Economics and Public Policy 2006-12, Indiana University, Kelley School of Business, Department of Business Economics and Public Policy.


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