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Firm pricing with consumer search

Author

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  • Anderson, Simon
  • Renault, Régis

Abstract

Economists could not properly capture the impact of internet on markets without a proper theory of consumer search. As a result, this theory has been rediscovered and developed further since the early 2000s. It can address such critical questions as the impact of reduced search cost on prices, variety, and product choice as well as advertising practices (such as search advertising). This theoretical development has also fed into a rich empirical literature exploiting the wealth of data that is now available regarding both consumers' and firms' online activity. The goal of this chapter is to present the basic concepts underpinning the theory of imperfectly competitive markets with consumer search. We stress that appropriate theoretical frameworks should involve sufficient heterogeneity among agents on both sides of the market. We also explain why the analysis of ordered search constitutes an essential ingredient for modeling recent search environments.

Suggested Citation

  • Anderson, Simon & Renault, Régis, 2016. "Firm pricing with consumer search," CEPR Discussion Papers 11723, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:11723
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    Cited by:

    1. Rouskas, Evangelos, 2020. "A model of sales with a large number of sellers," Mathematical Social Sciences, Elsevier, vol. 104(C), pages 68-70.
    2. Evangelos Rouskas, 2022. "The effects of entry in a model of sales," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 43(6), pages 2529-2544, September.
    3. Lyu, Chen, 2023. "Information design for selling search goods and the effect of competition," Journal of Economic Theory, Elsevier, vol. 213(C).

    More about this item

    Keywords

    Reservation rule; Diamond paradox; Sequential/simultaneous search; Random/ordered search; Price dispersion; Internet; Two-sided market; Product differentiation;
    All these keywords.

    JEL classification:

    • D42 - Microeconomics - - Market Structure, Pricing, and Design - - - Monopoly
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L15 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Information and Product Quality
    • M37 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Marketing and Advertising - - - Advertising
    • M38 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Marketing and Advertising - - - Government Policy and Regulation

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