Consumer Search and Information Intermediaries
In this paper we model the market for a homogeneous good and examine the role of information in determining market outcomes. Unlike in Baye and Morgan (2001) where consumers can only learn about the prices charged by different firms by subscribing to an information intermediary’s service, we allow consumers to shop for price quotes. We are interested in determing the impact on market outcomes of allowing for this additional means of information acquisition. Relative to the case where consumers have no interest in searching for prices, consumers become no better off as the cost of search falls. The intermediary, in an effort to compensate for the loss of revenue that it might have earned from consumers, increases the fees that it charges to firms for the right to advertise their product through it. As a result, fewer firms advertise in equilibrium, and so, those that do post higher prices, and, in expectation, consumers pay more for the product. The price increase appropriates all of the gains in consumer surplus generated by the decrease in the cost of search.
|Date of creation:||Jan 2007|
|Date of revision:|
|Contact details of provider:|| Postal: |
Phone: (514) 340-6463
Fax: (514) 340-6469
Web page: http://www.hec.ca/iea/
More information through EDIRC
|Order Information:|| Postal: Institut d'économie appliquée HEC Montréal 3000, Chemin de la Côte-Sainte-Catherine Montréal, Québec H3T 2A7|
When requesting a correction, please mention this item's handle: RePEc:iea:carech:0701. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Patricia Power)
If references are entirely missing, you can add them using this form.