Search, Design and Market Structure
The Internet has made consumer search much easier with consequences for competition, industry structure and product offerings. We explore these consequences in a rich but tractable model that allows for strategic design choices. We find a polarized market structure, where some firms choose designs aiming for broad-based audiences, while others target narrow niches. Such an industry structure can arise even when all firms and consumers are ex-ante identical. We perform comparative statics and show the effect of a fall in search costs on the designs, market shares, prices, and profits of different firms. In particular, a fall in search costs, through the effect on product designs, can lead to higher industry prices and profits. In characterizing sales distributions, our analysis is related to discussions of how the Internet has led to the prevalence of niche goods and the long tail and superstar phenomena.
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Lewis, Tracy R & Sappington, David E M, 1994. "Supplying Information to Facilitate Price Discrimination," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 35(2), pages 309-27, May.
- Catherine Tucker & Juanjuan Zhang, 2011. "How Does Popularity Information Affect Choices? A Field Experiment," Management Science, INFORMS, vol. 57(5), pages 828-842, May.
- Simon P. Anderson & Regis Renault, 1999.
"Pricing, product diversity, and search costs: a Bertrand-Chamberlin-Diamond model,"
Virginia Economics Online Papers
335, University of Virginia, Department of Economics.
- Simon P. Anderson & Regis Renault, 1999. "Pricing, Product Diversity, and Search Costs: A Bertrand-Chamberlin-Diamond Model," RAND Journal of Economics, The RAND Corporation, vol. 30(4), pages 719-735, Winter.
- Anderson, S.P. & Renault, R., 1997. "Pricing, Product Diversity and Search Costs: A Bertrand-Chamberlin-Diamond Model," Papers 97.481, Toulouse - GREMAQ.
- Heski Bar-Isaac & Guillermo Caruana & Vicente Cunat, 2008.
"Information Gathering and Marketing,"
08-17, New York University, Leonard N. Stern School of Business, Department of Economics.
- Larson, Nathan, 2008.
"Niche products, generic products, and consumer search,"
32161, University Library of Munich, Germany, revised 2011.
- Nathan Larson, 2013. "Niche products, generic products, and consumer search," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 52(2), pages 793-832, March.
- Gérard P. Cachon & Christian Terwiesch & Yi Xu, 2008. "On the Effects of Consumer Search and Firm Entry in a Multiproduct Competitive Market," Marketing Science, INFORMS, vol. 27(3), pages 461-473, 05-06.
- repec:dau:papers:123456789/12478 is not listed on IDEAS
- Dmitri Kuksov, 2004. "Buyer Search Costs and Endogenous Product Design," Marketing Science, INFORMS, vol. 23(4), pages 490-499, May.
- Heski Bar-Isaac & Guillermo Caruana & Vicente Cunat, 2007. "Information Gathering Externalities in Product Markets," Working Papers 07-18, New York University, Leonard N. Stern School of Business, Department of Economics.
- Asher Wolinsky, 1986. "True Monopolistic Competition as a Result of Imperfect Information," The Quarterly Journal of Economics, Oxford University Press, vol. 101(3), pages 493-511.
- Tucker, Catherine & Zhang, Juanjuan, 2007. "Long Tail or Steep Tail? A Field Investigation into How Online Popularity Information Affects the Distribution of Customer Choices," Working papers 39811, Massachusetts Institute of Technology (MIT), Sloan School of Management.
- Mark Bagnoli & Ted Bergstrom, 2005.
"Log-concave probability and its applications,"
Springer;Society for the Advancement of Economic Theory (SAET), vol. 26(2), pages 445-469, 08.
- Simon P. ANDERSON & Régis RENAULT, 2008.
"Comparative Advertising: disclosing horizontal match information,"
THEMA Working Papers
2008-29, THEMA (THéorie Economique, Modélisation et Applications), Université de Cergy-Pontoise.
- Simon P. Anderson & Régis Renault, 2009. "Comparative advertising: disclosing horizontal match information," RAND Journal of Economics, RAND Corporation, vol. 40(3), pages 558-581.
- J. Yannis Bakos, 1997. "Reducing Buyer Search Costs: Implications for Electronic Marketplaces," Management Science, INFORMS, vol. 43(12), pages 1676-1692, December.
When requesting a correction, please mention this item's handle: RePEc:net:wpaper:0917. 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: (Nicholas Economides)
If references are entirely missing, you can add them using this form.