Search prominence and return costs

It is widely held that sellers prefer to appear early in a consumer’s search, but evidence suggests this need not be the case. We develop a model which incorporates costly search and costly return and demonstrate that appearing later may be better. When return is free, prominence is desirable by standard logic, however costly return induces a tradeoff – it benefits an earlier seller by reducing the initial search but also benefits a later seller by preventing return conditional on search. We show that for small search costs later is better whenever high outcomes have a low likelihood, or whenever two independent match value draws are likely to be near one another. Later can still be better if sellers compete in prices prior to search. Finally, with many sellers the optimal position may be first, last, or in between but earlier positions are favored as the number of sellers grows.