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Consumers networks and search equilibria

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  • Galeotti, Andrea

Abstract

We explore the effect of local information sharing among consumers on market functioning. Consumers are embedded in a consumers network, they may costly search non-sequentially for price quotations and the information gather are non-excludable along direct links. We first show that when search costs are low consumers randomize between searching for one price and two price quotations (high search intensity equilibrium). Otherwise, consumers randomize between searching for one price and not searching at all (low search intensity equilibrium). In both equilibria consumers search less frequently in denser networks. The main result of the paper show that when search costs are low the expected price and the social welfare increase, while the consumer surplus decreases, as the consumers network becomes denser. These results are reverse when search costs are high.

Suggested Citation

  • Galeotti, Andrea, 2005. "Consumers networks and search equilibria," Working Papers 1225, California Institute of Technology, Division of the Humanities and Social Sciences.
  • Handle: RePEc:clt:sswopa:1225
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    File URL: http://www.hss.caltech.edu/SSPapers/wp1225.pdf
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    Cited by:

    1. Itay P. Fainmesser, 2012. "Community Structure and Market Outcomes: A Repeated Games-in-Networks Approach," American Economic Journal: Microeconomics, American Economic Association, vol. 4(1), pages 32-69, February.
    2. Andrea Galeotti & Sanjeev Goyal & Matthew O. Jackson & Fernando Vega-Redondo & Leeat Yariv, 2010. "Network Games," Review of Economic Studies, Oxford University Press, vol. 77(1), pages 218-244.

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    Keywords

    Networks; local externalities; non-sequential search;

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