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Experience Goods and Consumer Search

Author

Listed:
  • Yongmin Chen
  • Zhuozheng Li
  • Tianle Zhang

Abstract

We introduce a search model where products differ in horizontal attributes and unobserved quality ("experience goods"), and firms can establish quality reputation. We show that the inability of consumers to observe quality before purchase significantly changes how search frictions affect market performance. In equilibrium, higher search costs reduce match values and increase price but can boost firms' investment in product quality. Under plausible conditions, both consumer and total welfare initially increase in search cost, whereas both would monotonically decrease if quality were observable from search. We apply the analysis to online markets, where low search costs coexist with low-quality products.

Suggested Citation

  • Yongmin Chen & Zhuozheng Li & Tianle Zhang, 2022. "Experience Goods and Consumer Search," American Economic Journal: Microeconomics, American Economic Association, vol. 14(3), pages 591-621, August.
    • Handle: RePEc:aea:aejmic:v:14:y:2022:i:3:p:591-621
    DOI: 10.1257/mic.20200070
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    Citations

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    Cited by:

    1. Cao, Yiran & Chen, Yongmin & Ding, Yucheng & Zhang, Tianle, 2022. "Search and competition in expert markets," MPRA Paper 114170, University Library of Munich, Germany.
    2. Kim, Da Yeon & Kim, Sang Yong, 2023. "Investigating the effect of customer-generated content on performance in online platform-based experience goods market," Journal of Retailing and Consumer Services, Elsevier, vol. 74(C).
    3. Chen, Yongmin, 2023. "Search and Competition Under Product Quality Uncertainty," MPRA Paper 116609, University Library of Munich, Germany.

    More about this item

    JEL classification:

    • D11 - Microeconomics - - Household Behavior - - - Consumer Economics: Theory
    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • L15 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Information and Product Quality

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