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Consumer search markets with costly revisits

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  • Maarten Janssen

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  • Alexei Parakhonyak

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Abstract

This paper characterizes equilibrium outcomes in consumer search markets taking the cost of going back to stores already searched explicitly into account. We show that the optimal sequential search rule under costly revisits is very different from the traditional reservation price rule in that it is non-stationary and not independent of previously sampled prices. We explore the implications of costly revisits on market equilibrium in two celebrated search models. In the Wolinsky model, some consumers search beyond the first firm. In this class of models, costly revisits do make a substantive difference and their impact can be of the same order of magnitude as the initial search cost. In the Stahl oligopoly search model 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. Copyright Springer-Verlag Berlin Heidelberg 2014

Suggested Citation

  • Maarten Janssen & Alexei Parakhonyak, 2014. "Consumer search markets with costly revisits," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 55(2), pages 481-514, February.
  • Handle: RePEc:spr:joecth:v:55:y:2014:i:2:p:481-514
    DOI: 10.1007/s00199-013-0761-3
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    References listed on IDEAS

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    1. Maarten Janssen & Paul Pichler & Simon Weidenholzer, 2011. "Oligopolistic markets with sequential search and production cost uncertainty," RAND Journal of Economics, RAND Corporation, vol. 42(3), pages 444-470, September.
    2. Stahl, Dale O., 1996. "Oligopolistic pricing with heterogeneous consumer search," International Journal of Industrial Organization, Elsevier, vol. 14(2), pages 243-268.
    3. Mark Armstrong & John Vickers & Jidong Zhou, 2009. "Prominence and consumer search," RAND Journal of Economics, RAND Corporation, vol. 40(2), pages 209-233.
    4. Asher Wolinsky, 1986. "True Monopolistic Competition as a Result of Imperfect Information," The Quarterly Journal of Economics, Oxford University Press, vol. 101(3), pages 493-511.
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    7. Babur De Los Santos & Ali Hortacsu & Matthijs R. Wildenbeest, 2012. "Testing Models of Consumer Search Using Data on Web Browsing and Purchasing Behavior," American Economic Review, American Economic Association, vol. 102(6), pages 2955-2980, October.
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    9. Lippman, Steven A & McCall, John J, 1976. "The Economics of Job Search: A Survey: Part I," Economic Inquiry, Western Economic Association International, vol. 14(2), pages 155-189, June.
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    20. 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.
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    Citations

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    Cited by:

    1. Mark Armstrong & Jidong Zhou, 2016. "Search Deterrence," Review of Economic Studies, Oxford University Press, vol. 83(1), pages 26-57.
    2. Jun Honda, 2015. "Intermediary Search for Suppliers in Procurement Auctions," Department of Economics Working Papers wuwp203, Vienna University of Economics and Business, Department of Economics.
    3. Honda, Jun, 2015. "Intermediary Search for Suppliers in Procurement Auctions," Department of Economics Working Paper Series 4628, WU Vienna University of Economics and Business.
    4. Yuta KITTAKA, 2018. "Multiproduct Firms, Consumer Search, and Demand Heterogeneity," ISER Discussion Paper 1024, Institute of Social and Economic Research, Osaka University.
    5. Dubois, Pierre & Perrone, Helena, 2015. "Price Dispersion and Informational Frictions: Evidence from Supermarket Purchases," CEPR Discussion Papers 10906, C.E.P.R. Discussion Papers.
    6. Dieter Pennerstorfer & Philipp Schmidt-Dengler & Nicolas Schutz & Christoph R. Weiss & Biliana Yontcheva, 2015. "Information and Price Dispersion. Theory and Evidence," WIFO Working Papers 502, WIFO.
    7. Muck, Johannes, 2016. "Tariff-mediated network effects with incompletely informed consumers," DICE Discussion Papers 210, University of Düsseldorf, Düsseldorf Institute for Competition Economics (DICE).
    8. Alexei Parakhonyak & Anton Sobolev, 2015. "Non‐Reservation Price Equilibrium and Search without Priors," Economic Journal, Royal Economic Society, vol. 0(584), pages 887-909, May.
    9. repec:eee:indorg:v:58:y:2018:i:c:p:162-182 is not listed on IDEAS
    10. Ş. Akın & Brennan Platt, 2014. "A theory of search with deadlines and uncertain recall," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 55(1), pages 101-133, January.
    11. Alexei Parakhonyak & Maria Titova, 2016. "Shopping Malls, Platforms and Consumer Search," Economics Series Working Papers 807, University of Oxford, Department of Economics.
    12. Maarten Janssen & Sandro Shelegia, 2015. "Consumer Search and Double Marginalization," American Economic Review, American Economic Association, vol. 105(6), pages 1683-1710, June.
    13. repec:bla:randje:v:49:y:2018:i:1:p:224-253 is not listed on IDEAS
    14. repec:eee:jetheo:v:172:y:2017:i:c:p:120-162 is not listed on IDEAS
    15. Garcia, Daniel & Janssen, Maarten, 2018. "Retail channel management in consumer search markets," International Journal of Industrial Organization, Elsevier, vol. 58(C), pages 162-182.
    16. Sandro Shelegia & Daniel Garcia, 2015. "Consumer Search with Observational Learning," Vienna Economics Papers 1502, University of Vienna, Department of Economics.

    More about this item

    Keywords

    Search; Costly revisits; Oligopoly; Competition; D11; D40; D83; L13;

    JEL classification:

    • D11 - Microeconomics - - Household Behavior - - - Consumer Economics: Theory
    • D40 - Microeconomics - - Market Structure, Pricing, and Design - - - General
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

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