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Consumer Search Markets with Costly Second Visits

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This 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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File URL: http://homepage.univie.ac.at/Papers.Econ/RePEc/vie/viennp/vie1102.pdf
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Paper provided by University of Vienna, Department of Economics in its series Vienna Economics Papers with number 1102.

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Date of creation: Jan 2011
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Handle: RePEc:vie:viennp:1102

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Web page: http://www.univie.ac.at/vwl

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  1. 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.
  2. Kohn, Meir G. & Shavell, Steven, 1974. "The theory of search," Journal of Economic Theory, Elsevier, vol. 9(2), pages 93-123, October.
  3. Waldeck, Roger, 2008. "Search and price competition," Journal of Economic Behavior & Organization, Elsevier, vol. 66(2), pages 347-357, May.
  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. Morgan, Peter & Manning, Richard, 1985. "Optimal Search," Econometrica, Econometric Society, vol. 53(4), pages 923-44, July.
  6. Armstrong, Mark & Zhou, Jidong, 2010. "Conditioning prices on search behaviour," MPRA Paper 19985, University Library of Munich, Germany.
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Cited by:
  1. Maarten Janssen & Alexei Parakhonyak & Anastasia Parakhonyak, 2014. "Non-reservation price equilibria and Consumer search," HSE Working papers WP BRP 51/EC/2014, National Research University Higher School of Economics.
  2. S. Nuray Akin & Brennan Platt, 2012. "A theory of search with deadlines and uncertain recall," Working Papers 2012-3, University of Miami, Department of Economics.
  3. Mark Armstrong & Jidong Zhou, 2013. "Search Deterrence," Economics Series Working Papers 661, University of Oxford, Department of Economics.

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