Search, Design and Market Structure
AbstractThe Internet has made consumer search much easier with consequences for competition, industry structure and product offerings. We explore these consequences in a rich but tractable model that allows for strategic design choices. We find a polarized market structure, where some firms choose designs aiming for broad-based audiences, while others target narrow niches. Such an industry structure can arise even when all firms and consumers are ex-ante identical. We perform comparative statics and show the effect of a fall in search costs on the designs, market shares, prices, and profits of different firms. In particular, a fall in search costs, through the effect on product designs, can lead to higher industry prices and profits. In characterizing sales distributions, our analysis is related to discussions of how the Internet has led to the prevalence of niche goods and the long tail and superstar phenomena.
Download InfoIf 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.
Bibliographic InfoPaper provided by NET Institute in its series Working Papers with number 09-17.
Date of creation: Sep 2009
Date of revision: Sep 2009
Contact details of provider:
Web page: http://www.NETinst.org/
Other versions of this item:
- D11 - Microeconomics - - Household Behavior - - - Consumer Economics: Theory
- D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
- D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search, Learning, and Information
- L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
- L86 - Industrial Organization - - Industry Studies: Services - - - Information and Internet Services; Computer Software
This paper has been announced in the following NEP Reports:
- NEP-ALL-2009-10-24 (All new papers)
- NEP-COM-2009-10-24 (Industrial Competition)
- NEP-ICT-2009-10-24 (Information & Communication Technologies)
- NEP-MIC-2009-10-24 (Microeconomics)
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.:
- Lewis, Tracy R & Sappington, David E M, 1994. "Supplying Information to Facilitate Price Discrimination," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 35(2), pages 309-27, May.
- Gérard P. Cachon & Christian Terwiesch & Yi Xu, 2008. "On the Effects of Consumer Search and Firm Entry in a Multiproduct Competitive Market," Marketing Science, INFORMS, vol. 27(3), pages 461-473, 05-06.
- Simon P. Anderson & Regis Renault, 1999.
"Pricing, product diversity, and search costs: a Bertrand-Chamberlin-Diamond model,"
Virginia Economics Online Papers
335, University of Virginia, Department of Economics.
- Simon P. Anderson & Regis Renault, 1999. "Pricing, Product Diversity, and Search Costs: A Bertrand-Chamberlin-Diamond Model," RAND Journal of Economics, The RAND Corporation, vol. 30(4), pages 719-735, Winter.
- Anderson, S.P. & Renault, R., 1997. "Pricing, Product Diversity and Search Costs: A Bertrand-Chamberlin-Diamond Model," Papers 97.481, Toulouse - GREMAQ.
- Renault, Régis & Anderson, Simon P., 2009.
"Comparative advertising: disclosing horizontal match information,"
Economics Papers from University Paris Dauphine
123456789/12478, Paris Dauphine University.
- Simon P. Anderson & Régis Renault, 2009. "Comparative advertising: disclosing horizontal match information," RAND Journal of Economics, RAND Corporation, vol. 40(3), pages 558-581.
- Simon P. ANDERSON & Régis RENAULT, 2008. "Comparative Advertising: disclosing horizontal match information," THEMA Working Papers 2008-29, THEMA (THéorie Economique, Modélisation et Applications), Université de Cergy-Pontoise.
- Catherine Tucker & Juanjuan Zhang, 2011. "How Does Popularity Information Affect Choices? A Field Experiment," Management Science, INFORMS, vol. 57(5), pages 828-842, May.
- Heski Bar-Isaac & Guillermo Caruana & Vicente Cuñat, 2010.
"Information Gathering and Marketing,"
Journal of Economics & Management Strategy,
Wiley Blackwell, vol. 19(2), pages 375-401, 06.
- Nathan Larson, 2013.
"Niche products, generic products, and consumer search,"
Springer, vol. 52(2), pages 793-832, March.
- Larson, Nathan, 2008. "Niche products, generic products, and consumer search," MPRA Paper 32161, University Library of Munich, Germany, revised 2011.
- Mark Bagnoli & Ted Bergstrom, 2005.
"Log-concave probability and its applications,"
Springer, vol. 26(2), pages 445-469, 08.
- 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.
- J. Yannis Bakos, 1997. "Reducing Buyer Search Costs: Implications for Electronic Marketplaces," Management Science, INFORMS, vol. 43(12), pages 1676-1692, December.
- Tucker, Catherine & Zhang, Juanjuan, 2007. "Long Tail or Steep Tail? A Field Investigation into How Online Popularity Information Affects the Distribution of Customer Choices," Working papers 39811, Massachusetts Institute of Technology (MIT), Sloan School of Management.
- Dmitri Kuksov, 2004. "Buyer Search Costs and Endogenous Product Design," Marketing Science, INFORMS, vol. 23(4), pages 490-499, May.
- Renault, Régis, 2014. "Platform contents," Economics Papers from University Paris Dauphine 123456789/12808, Paris Dauphine University.
- Wang, Chengsi, 2011. "Informative Advertising, Consumer Search and Transparency Policy," MPRA Paper 34977, University Library of Munich, Germany.
- Arthur Fishman & Nadav Levy, 2011. "Search Costs and Risky Investment in Quality," Working Papers 2011-04, Department of Economics, Bar-Ilan University.
- Fershtman, Chaim & Fishman, Arthur & Zhou, Jidong, 2013. "Search and Categorization," MPRA Paper 53166, University Library of Munich, Germany.
- Chen, Yongmin & Zhang, Tianle, 2013. "Entry and Welfare in Search Markets," MPRA Paper 52241, University Library of Munich, Germany.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Nicholas Economides).
If references are entirely missing, you can add them using this form.