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Prominence and Consumer Search: The Case With Multiple Prominent Firms

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  • Zhou, Jidong

Abstract

This paper extends Armstrong, Vickers, and Zhou (2007) to the case with multiple prominent firms. All consumers first search among prominent firms, and if their products are not satisfactory, they continue to search among non-prominent ones. Prominent firms will charge a lower price than their non-prominent rivals as in the case with a single prominent firm, but relative to the situation without any prominent firm, the presence of more than one prominent firm can induce all firms to raise their prices. We also characterize how market prices and welfare vary with the number of prominent firms.

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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 12554.

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Date of creation: 06 Jan 2009
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Handle: RePEc:pra:mprapa:12554

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Keywords: consumer search; marketing; prominence; product differentiation;

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References

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  1. Susan Athey & Glenn Ellison, 2007. "Position Auctions with Consumer Search," Levine's Bibliography, UCLA Department of Economics 122247000000001633, UCLA Department of Economics.
  2. Wolinsky, Asher, 1986. "True Monopolistic Competition as a Result of Imperfect Information," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 101(3), pages 493-511, August.
  3. M. L. Weitzman, 1978. "Optimal Search for the Best Alternative," Working papers, Massachusetts Institute of Technology (MIT), Department of Economics 214, Massachusetts Institute of Technology (MIT), Department of Economics.
  4. Kohn, Meir G. & Shavell, Steven, 1974. "The theory of search," Journal of Economic Theory, Elsevier, Elsevier, vol. 9(2), pages 93-123, October.
  5. Benjamin Edelman & Michael Ostrovsky & Michael Schwarz, 2007. "Internet Advertising and the Generalized Second-Price Auction: Selling Billions of Dollars Worth of Keywords," American Economic Review, American Economic Association, American Economic Association, vol. 97(1), pages 242-259, March.
  6. Brigitte C. Madrian & Dennis F. Shea, 2000. "The Power of Suggestion: Inertia in 401(k) Participation and Savings Behavior," NBER Working Papers, National Bureau of Economic Research, Inc 7682, National Bureau of Economic Research, Inc.
  7. Wilson, Chris M., 2010. "Ordered search and equilibrium obfuscation," International Journal of Industrial Organization, Elsevier, Elsevier, vol. 28(5), pages 496-506, September.
  8. Mark Armstrong & John Vickers & Jidong Zhou, 2009. "Prominence and consumer search," RAND Journal of Economics, RAND Corporation, RAND Corporation, vol. 40(2), pages 209-233.
  9. Bagwell, Kyle & Ramey, Garey, 1994. "Coordination Economies, Advertising, and Search Behavior in Retail Markets," American Economic Review, American Economic Association, American Economic Association, vol. 84(3), pages 498-517, June.
  10. Maria Arbatskaya, 2007. "Ordered search," RAND Journal of Economics, RAND Corporation, RAND Corporation, vol. 38(1), pages 119-126, 03.
  11. Perry, Motty & Wigderson, Avi, 1986. "Search in a Known Pattern," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 94(1), pages 225-30, February.
  12. Yongmin Chen & Chuan He, 2011. "Paid Placement: Advertising and Search on the Internet," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 121(556), pages F309-F328, November.
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Cited by:
  1. Jose L. Moraga-Gonzalez & Vaiva Petrikaite, 2012. "Search Costs, Demand-Side Economies and the Incentives to merge under Bertrand Competition," Tinbergen Institute Discussion Papers, Tinbergen Institute 12-017/1, Tinbergen Institute.
  2. Steffen Huck & Jidong Zhou, 2011. "Consumer Behavioural Biases in Competition: A Survey," Working Papers, New York University, Leonard N. Stern School of Business, Department of Economics 11-16, New York University, Leonard N. Stern School of Business, Department of Economics.
  3. Zhou, Jidong, 2011. "Ordered search in differentiated markets," International Journal of Industrial Organization, Elsevier, Elsevier, vol. 29(2), pages 253-262, March.

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