IDEAS home Printed from https://ideas.repec.org/p/arx/papers/2110.00032.html

Truly Costly Search and Word-of-Mouth Communication

Author

Listed:
  • Atabek Atayev

Abstract

In markets with search frictions, consumers can acquire information about goods either through costly search or from friends via word-of-mouth (WOM) communication. How do sellers' market power react to a very large increase in the number of consumers' friends with whom they engage in WOM? The answer to the question depends on whether consumers are freely endowed with price information. If acquiring price quotes is costly, equilibrium prices are dispersed and the expected price is higher than the marginal cost of production. This implies that firms retain market power even if price information is disseminated among a very large number of consumers due to technological progress, such as social networking websites.

Suggested Citation

  • Atabek Atayev, 2021. "Truly Costly Search and Word-of-Mouth Communication," Papers 2110.00032, arXiv.org.
    • Handle: RePEc:arx:papers:2110.00032
    as

    Download full text from publisher

    File URL: http://arxiv.org/pdf/2110.00032
    File Function: Latest version
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Shilony, Yuval, 1977. "Mixed pricing in oligopoly," Journal of Economic Theory, Elsevier, vol. 14(2), pages 373-388, April.
    2. Fershtman, Chaim & Fishman, Arthur, 1992. "Price Cycles and Booms: Dynamic Search Equilibrium," American Economic Review, American Economic Association, vol. 82(5), pages 1221-1233, December.
    3. Diamond, Peter A., 1971. "A model of price adjustment," Journal of Economic Theory, Elsevier, vol. 3(2), pages 156-168, June.
    4. Maarten C. W. Janssen & José Luis Moraga-González, 2004. "Strategic Pricing, Consumer Search and the Number of Firms," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 71(4), pages 1089-1118.
    5. Burdett, Kenneth & Judd, Kenneth L, 1983. "Equilibrium Price Dispersion," Econometrica, Econometric Society, vol. 51(4), pages 955-969, July.
    6. Arthur Campbell & C. Matthew Leister & Yves Zenou, 2020. "Word‐of‐mouth communication and search," RAND Journal of Economics, RAND Corporation, vol. 51(3), pages 676-712, September.
    7. Andrea Galeotti, 2004. "Consumers Networks and Search Equilibria," Tinbergen Institute Discussion Papers 04-075/1, Tinbergen Institute.
    8. David Godes & Dina Mayzlin, 2004. "Using Online Conversations to Study Word-of-Mouth Communication," Marketing Science, INFORMS, vol. 23(4), pages 545-560, June.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Atayev, Atabek, 2021. "Truly costly search and word-of-mouth communication," ZEW Discussion Papers 21-090, ZEW - Leibniz Centre for European Economic Research.
    2. Atabek Atayev & Maarten Janssen, 2024. "Information Acquisition And Diffusion In Markets," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 65(2), pages 729-753, May.
    3. Atayev, Atabek & Janssen, Maarten C. W., 2021. "Information acquisition and diffusion in markets," ZEW Discussion Papers 21-091, ZEW - Leibniz Centre for European Economic Research.
    4. Atabek Atayev, 2021. "Uncertain Product Availability in Search Markets," Papers 2109.15211, arXiv.org.
    5. Jose Luis Moraga-Gonzalez & Zsolt Sandor & Matthijs R. Wildenbeest, "undated". "Do higher search costs make the markets less competitive?," Working Papers 2013-08, Indiana University, Kelley School of Business, Department of Business Economics and Public Policy.
    6. Atayev, Atabek, 2022. "Uncertain product availability in search markets," Journal of Economic Theory, Elsevier, vol. 204(C).
    7. Atayev, Atabek, 2021. "Uncertain product availability in search markets," ZEW Discussion Papers 21-089, ZEW - Leibniz Centre for European Economic Research.
    8. Koo, Bonwoo & Mantin, Benny & O'Connor, Peter, 2011. "Online distribution of airline tickets: Should airlines adopt a single or a multi-channel approach?," Tourism Management, Elsevier, vol. 32(1), pages 69-74.
    9. Joshua Sherman & Avi Weiss, 2017. "On Fruitful And Futile Tests Of The Relationship Between Search And Price Dispersion," Economic Inquiry, Western Economic Association International, vol. 55(4), pages 1898-1918, October.
    10. Sneha Bakshi, 2020. "Limits of price competition: cost asymmetry and imperfect information," International Journal of Game Theory, Springer;Game Theory Society, vol. 49(4), pages 913-932, December.
    11. Jason R. Blevins & Garrett T. Senney, 2019. "Dynamic selection and distributional bounds on search costs in dynamic unit‐demand models," Quantitative Economics, Econometric Society, vol. 10(3), pages 891-929, July.
    12. Rauh, Michael T., 2009. "Strategic complementarities and search market equilibrium," Games and Economic Behavior, Elsevier, vol. 66(2), pages 959-978, July.
    13. Kyle Bagwell & Garey Ramey, 1992. "The Diamond Paradox: A Dynamic Resolution," Discussion Papers 1013, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
    14. Avi Weiss & Joshua Sherman, 2014. "An Empirical Analysis of Search Costs and Price Dispersion," Working Papers 2014-06, Bar-Ilan University, Department of Economics.
    15. Fishman, Arthur & Rob, Rafael, 1998. "Experimentation and Competition," Journal of Economic Theory, Elsevier, vol. 78(2), pages 299-320, February.
    16. Anania, Giovanni & Nisticò, Rosanna, 2014. "Price dispersion and seller heterogeneity in retail food markets," Food Policy, Elsevier, vol. 44(C), pages 190-201.
    17. Michael Grubb, 2015. "Failing to Choose the Best Price: Theory, Evidence, and Policy," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 47(3), pages 303-340, November.
    18. repec:smu:ecowpa:1301 is not listed on IDEAS
    19. Maarten C.W. Janssen & Jose Luis Moraga-Gonzalez & Matthijs R. Wildenbeest, 2004. "Consumer Search and Oligopolistic Pricing: An Empirical Investigation," Tinbergen Institute Discussion Papers 04-071/1, Tinbergen Institute.
    20. 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.
    21. Obradovits, Martin, 2017. "Search and segregation," International Journal of Industrial Organization, Elsevier, vol. 55(C), pages 137-165.

    More about this item

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:arx:papers:2110.00032. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: arXiv administrators (email available below). General contact details of provider: http://arxiv.org/ .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.