New product introduction and diffusion with costly search
AbstractWill the low search cost in the new economy help speed up new product introduction? The usual model of product market search suggests that a low search cost can turn out to have detrimental incentives on innovation and new product introduction as the low search cost erodes firms' market power, attenuating the profit from innovation. This usual model, however, misses the important dimension of product market search that how often it pays to search depends on the magnitude of the search cost. This paper studies a model of monopolistic competition with costly search, where the point of departure is that of a fixed cost of a shopping trip. With this fixed cost, the optimal search frequency is tied to the magnitude of the search cost. In this environment, a low search cost could turn out to be favorable to innovation. At a low search cost, consumers search more often, speeding up the diffusion of new products and possibly resulting in higher profits for firms, despite the erosion of market power.
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 Society for Economic Dynamics in its series 2004 Meeting Papers with number 237.
Date of creation: 2004
Date of revision:
Contact details of provider:
Postal: Society for Economic Dynamics Christian Zimmermann Economic Research Federal Reserve Bank of St. Louis PO Box 442 St. Louis MO 63166-0442 USA
Web page: http://www.EconomicDynamics.org/society.htm
More information through EDIRC
product market search; innovation; new product introduction;
Find related papers by JEL classification:
- L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
- O31 - Economic Development, Technological Change, and Growth - - Technological Change; Research and Development; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives
- D40 - Microeconomics - - Market Structure and Pricing - - - General
This paper has been announced in the following NEP Reports:
- NEP-ALL-2004-08-02 (All new papers)
- NEP-ENT-2004-08-02 (Entrepreneurship)
- NEP-INO-2004-08-02 (Innovation)
- NEP-MIC-2004-08-02 (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.:
- Pereira, Pedro, 2001. "Market power, cost reduction and consumer search," International Journal of Industrial Organization, Elsevier, vol. 19(9), pages 1457-1473, November.
- 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.
- 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.
- Kohn, Meir G. & Shavell, Steven, 1974. "The theory of search," Journal of Economic Theory, Elsevier, vol. 9(2), pages 93-123, October.
- Tse, C.Y.Chung Yi, 2004. "Search frictions, market power, and long-run growth," Journal of Economic Theory, Elsevier, vol. 116(2), pages 323-346, June.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Christian Zimmermann).
If references are entirely missing, you can add them using this form.