Advanced Search
MyIDEAS: Login to save this paper or follow this series

Referrals in Search Markets

Contents:

Author Info

  • Maria Arbatskaya
  • Hideo Konishi

Abstract

This paper compares the equilibrium outcomes in search markets with and without referrals. Although it seems clear that consumers would benefit from referrals, it is not at all clear whether firms would unilaterally provide information about competing offers since such information could encourage consumers to purchase the product elsewhere. In a model of a horizontally differentiated product and sequential consumer search, we show that valuable referrals can arise in the equilibrium: a firm will give referrals to consumers whose ideal product is sufficiently far from the firm's offering. It is found that the equilibrium prices are higher in markets with referrals. Although referrals can make consumers worse off, referrals lead to a Pareto improvement as long as the search cost is not too low relative to product heterogeneity. Similar results are obtained in the presence of referral fees and in the case where firms can price-discriminate among consumers and consumers can misrepresent their tastes.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://economics.emory.edu/home/assets/workingpapers/arbatskaya_10_04_paper.pdf
Download Restriction: no

Bibliographic Info

Paper provided by Department of Economics, Emory University (Atlanta) in its series Emory Economics with number 1004.

as in new window
Length:
Date of creation: Jul 2010
Date of revision:
Handle: RePEc:emo:wp2003:1004

Contact details of provider:
Email:
Web page: http://economics.emory.edu/home/journals/
More information through EDIRC

Related research

Keywords:

Other versions of this item:

Find related papers by JEL classification:

This paper has been announced in the following NEP Reports:

References

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
as in new window
  1. Birger Wernerfelt, 1994. "Selling Formats for Search Goods," Marketing Science, INFORMS, vol. 13(3), pages 298-309.
  2. Mark V. Pauly, 1979. "The Ethics and Economics of Kickbacks and Fee Splitting," Bell Journal of Economics, The RAND Corporation, vol. 10(1), pages 344-352, Spring.
  3. Hideo Konishi, 1999. "Concentration of Competing Retail Stores," Boston College Working Papers in Economics 447, Boston College Department of Economics.
  4. Janssen, Maarten C.W. & Moraga-Gonzalez, Jose Luis & Wildenbeest, Matthijs R., 2005. "Truly costly sequential search and oligopolistic pricing," International Journal of Industrial Organization, Elsevier, vol. 23(5-6), pages 451-466, June.
  5. Simon P. Anderson & Regis Renault, 1997. "Consumer Information and Firm Pricing: Negative Externalities from Improved Information," Virginia Economics Online Papers 338, University of Virginia, Department of Economics.
  6. Wolinsky, Asher, 1986. "True Monopolistic Competition as a Result of Imperfect Information," The Quarterly Journal of Economics, MIT Press, vol. 101(3), pages 493-511, August.
  7. Asher Wolinsky, 1983. "Retail Trade Concentration Due to Consumers' Imperfect Information," Bell Journal of Economics, The RAND Corporation, vol. 14(1), pages 275-282, Spring.
  8. Stephen J. Spurr, 1990. "The Impact of Advertising and Other Factors on Referral Practices, with Special Reference to Lawyers," RAND Journal of Economics, The RAND Corporation, vol. 21(2), pages 235-246, Summer.
  9. Wolinsky, Asher, 1984. "Product Differentiation with Imperfect Information," Review of Economic Studies, Wiley Blackwell, vol. 51(1), pages 53-61, January.
  10. Colwell, Peter F & Kahn, Charles M, 2001. "The Economic Functions of Referrals and Referral Fees," The Journal of Real Estate Finance and Economics, Springer, vol. 23(3), pages 267-96, November.
  11. Diamond, Peter A., 1971. "A model of price adjustment," Journal of Economic Theory, Elsevier, vol. 3(2), pages 156-168, June.
  12. Stiglitz, J E, 1979. "Equilibrium in Product Markets with Imperfect Information," American Economic Review, American Economic Association, vol. 69(2), pages 339-45, May.
Full references (including those not matched with items on IDEAS)

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
  1. Ding, Ke & Gokan, Toshitaka & Zhu, Xiwei, 2013. "Search, matching, and self-organization of a marketplace," IDE Discussion Papers 396, Institute of Developing Economies, Japan External Trade Organization(JETRO).

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:emo:wp2003:1004. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Sue Mialon).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.