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Entry and Welfare in Search Markets

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  • Yongmin Chen
  • Tianle Zhang

Abstract

The welfare effects of entry are studied in a model of consumer search. Potential entrants differ in quality, with high†quality sellers being more likely to meet consumer needs. Contrary to the standard view in economics that more entry benefits consumers, we find that free entry is excessive for both consumer welfare and total welfare when entry cost is relatively low, and consumer welfare has an inverted†U relationship with entry cost. We explain why these results may arise naturally in search markets due to the search variety and search quality effects of entry, and discuss their business and policy implications.

Suggested Citation

  • Yongmin Chen & Tianle Zhang, 2018. "Entry and Welfare in Search Markets," Economic Journal, Royal Economic Society, vol. 128(608), pages 55-80, February.
    • Handle: RePEc:wly:econjl:v:128:y:2018:i:608:p:55-80
    DOI: 10.1111/ecoj.12412
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    References listed on IDEAS

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    Cited by:

    1. Cao, Yiran & Chen, Yongmin & Ding, Yucheng & Zhang, Tianle, 2022. "Search and competition in expert markets," MPRA Paper 122509, University Library of Munich, Germany, revised 27 Oct 2024.
    2. Heinsalu, Sander, 2020. "Investing to access an adverse selection market," International Journal of Industrial Organization, Elsevier, vol. 72(C).
    3. Sokullu, Senay, 2023. "More Is Better, Or Not? An Empirical Analysis of Buyer Preferences for Variety on the E-Market," Journal of Economic Behavior & Organization, Elsevier, vol. 209(C), pages 450-470.
    4. Chen, Yongmin & Li, zhuozheng & Zhang, Tianle, 2019. "A Search Model of Experience Goods," MPRA Paper 93547, University Library of Munich, Germany.
    5. Ding, Yucheng & Zhang, Tianle, 2018. "Price-directed consumer search," International Journal of Industrial Organization, Elsevier, vol. 58(C), pages 106-135.
    6. Yongmin Chen & Jianpei Li & Jin Zhang, 2022. "Efficient Liability In Expert Markets," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 63(4), pages 1717-1744, November.
    7. Engineer, Merwan H. & Schure, Paul & Vo, Dan H., 2019. "Hide and seek search: Why angels hide and entrepreneurs seek," Journal of Economic Behavior & Organization, Elsevier, vol. 157(C), pages 523-540.
    8. Chen, Yongmin, 2020. "Improving market performance in the digital economy," China Economic Review, Elsevier, vol. 62(C).
    9. Atayev, Atabek, 2022. "Uncertain product availability in search markets," Journal of Economic Theory, Elsevier, vol. 204(C).
    10. Atabek Atayev, 2021. "Uncertain Product Availability in Search Markets," Papers 2109.15211, arXiv.org.
    11. Casner, Ben, 2020. "Seller curation in platforms," International Journal of Industrial Organization, Elsevier, vol. 72(C).
    12. Yongmin Chen, 2024. "Search and Competition Under Product Quality Uncertainty," Journal of Industrial Economics, Wiley Blackwell, vol. 72(2), pages 633-661, June.
    13. Cao, Yiran & Chen, Yongmin & Ding, Yucheng & Zhang, Tianle, 2022. "Search and competition in expert markets," MPRA Paper 114170, University Library of Munich, Germany.
    14. Atayev, Atabek, 2021. "Uncertain product availability in search markets," ZEW Discussion Papers 21-089, ZEW - Leibniz Centre for European Economic Research.
    15. José L. Moraga-González & Yajie Sun, 2023. "Product Quality and Consumer Search," American Economic Journal: Microeconomics, American Economic Association, vol. 15(1), pages 117-141, February.
    16. Chen, Yongmin & Zhang, Tianle, 2018. "Intermediaries and consumer search," International Journal of Industrial Organization, Elsevier, vol. 57(C), pages 255-277.

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    More about this item

    JEL classification:

    • D8 - Microeconomics - - Information, Knowledge, and Uncertainty
    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance

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