Prominence and Consumer Search
This paper examines the implications of "prominence" in search markets.� We model prominence by supposing that the prominent firm will be sampled first by all consumers.� If there are no systematic quality differences among firms, we find that the prominent firm will charge a lower price than its non-prominent rivals.� The impact of making a firm prominent is that it will typically lead to higher industry profit but lower consumer surplus and welfare.� The model is extended by introducing heterogeneous product qualities, in which case the firm with the highest-quality product has the greatest incentive to become prominent, and making it prominent will boost industry profit, consumer surplus and welfare.
|Date of creation:||01 Jan 2008|
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