Consumer Search Markets with Costly Second Visits
AbstractThis is the first paper on consumer search where the cost of going back to stores already searched is explicitly taken into account. We show that the optimal sequential search rule under costly second visits is very different from the traditional reservation price rule in that it is nonstationary and not independent of previously sampled prices. We explore the implications of costly second visits on market equilibrium in two celebrated search models. In the Wolinsky model some consumers search beyond the first firm and in this class of models costly second visits do make a substantive difference: equilibrium prices under costly second visits can both be higher and lower than their perfect recall analogues. In the oligopoly search model of Stahl where consumers do not search beyond the first firm, there remains a unique symmetric equilibrium that has firms use pricing strategies that are identical to the perfect recall case.
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Bibliographic InfoPaper provided by University of Vienna, Department of Economics in its series Vienna Economics Papers with number 1102.
Date of creation: Jan 2011
Date of revision:
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Web page: http://www.univie.ac.at/vwl
Find related papers by JEL classification:
- D11 - Microeconomics - - Household Behavior - - - Consumer Economics: Theory
- D40 - Microeconomics - - Market Structure and Pricing - - - General
- D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search, Learning, and Information
- L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
This paper has been announced in the following NEP Reports:
- NEP-ALL-2011-02-12 (All new papers)
- NEP-COM-2011-02-12 (Industrial Competition)
- NEP-MIC-2011-02-12 (Microeconomics)
- NEP-MKT-2011-02-12 (Marketing)
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.:
- Michael R. Baye & John Morgan & Patrick Scholten, 2006. "Information, Search, and Price Dispersion," Working Papers 2006-11, Indiana University, Kelley School of Business, Department of Business Economics and Public Policy.
- Waldeck, Roger, 2008. "Search and price competition," Journal of Economic Behavior & Organization, Elsevier, vol. 66(2), pages 347-357, May.
- Morgan, Peter & Manning, Richard, 1985. "Optimal Search," Econometrica, Econometric Society, vol. 53(4), pages 923-44, July.
- Kohn, Meir G. & Shavell, Steven, 1974. "The theory of search," Journal of Economic Theory, Elsevier, vol. 9(2), pages 93-123, October.
- Armstrong, Mark & Zhou, Jidong, 2010. "Conditioning prices on search behaviour," MPRA Paper 19985, University Library of Munich, Germany.
- 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.
- Mark Armstrong & Jidong Zhou, 2013.
Economics Series Working Papers
661, University of Oxford, Department of Economics.
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