IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Login to save this paper or follow this series

Paying for prominence

  • Armstrong, Mark
  • Zhou, Jidong

We investigate three ways in which firms can become "prominent" and thereby influence the order in which consumers consider options. First, firms can affect an intermediary's sales efforts by means of commission payments. When firms pay commission to a salesman, the salesman promotes the product with the highest commission, and steers ignorant consumers towards the more expensive product. Second, sellers can advertise prices on a price comparison website, so that consumers investigate the suitability of products in order of increasing price. In such a market, equilibrium prices are lower when search costs are higher since a firm's benefit from being investigated first increases with search costs. Finally, consumers might first consider their existing supplier when they purchase a new product, which suggests a relatively benign rationale for the prevalence of cross-selling in markets such as retail banking.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://mpra.ub.uni-muenchen.de/30529/1/MPRA_paper_30529.pdf
File Function: original version
Download Restriction: no

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 30529.

as
in new window

Length:
Date of creation: 27 Apr 2011
Date of revision:
Handle: RePEc:pra:mprapa:30529
Contact details of provider: Postal: Schackstr. 4, D-80539 Munich, Germany
Phone: +49-(0)89-2180-2219
Fax: +49-(0)89-2180-3900
Web page: http://mpra.ub.uni-muenchen.de

More information through EDIRC

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.:

as in new window
  1. Yongmin Chen, 1997. "Paying Customers to Switch," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 6(4), pages 877-897, December.
  2. Wolinsky, Asher, 1986. "True Monopolistic Competition as a Result of Imperfect Information," The Quarterly Journal of Economics, MIT Press, vol. 101(3), pages 493-511, August.
  3. Benjamin Edelman & Michael Ostrovsky & Michael Schwarz, 2007. "Internet Advertising and the Generalized Second-Price Auction: Selling Billions of Dollars Worth of Keywords," American Economic Review, American Economic Association, vol. 97(1), pages 242-259, March.
  4. Mark Armstrong & John Vickers & Jidong Zhou, 2009. "Prominence and consumer search," RAND Journal of Economics, RAND Corporation, vol. 40(2), pages 209-233.
  5. Bagwell, Kyle & Ramey, Garey, 1994. "Coordination Economies, Advertising, and Search Behavior in Retail Markets," American Economic Review, American Economic Association, vol. 84(3), pages 498-517, June.
  6. Paul Klemperer & Joseph Farrell, 2006. "Coordination and Lock-In: Competition with Switching Costs and Network Effects," Economics Series Working Papers 2006-W07, University of Oxford, Department of Economics.
  7. Zhou, Jidong, 2011. "Ordered search in differentiated markets," International Journal of Industrial Organization, Elsevier, vol. 29(2), pages 253-262, March.
  8. Maria Arbatskaya, 2007. "Ordered search," RAND Journal of Economics, RAND Corporation, vol. 38(1), pages 119-126, 03.
  9. Yongmin Chen & Chuan He, 2011. "Paid Placement: Advertising and Search on the Internet," Economic Journal, Royal Economic Society, vol. 121(556), pages F309-F328, November.
  10. Varian, Hal R., 2007. "Position auctions," International Journal of Industrial Organization, Elsevier, vol. 25(6), pages 1163-1178, December.
  11. Wilson, Chris M., 2010. "Ordered search and equilibrium obfuscation," International Journal of Industrial Organization, Elsevier, vol. 28(5), pages 496-506, September.
  12. Michael R. Baye & J. Rupert J. Gatti & Paul Kattuman & John Morgan, 2009. "Clicks, Discontinuities, and Firm Demand Online," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 18(4), pages 935-975, December.
  13. Jay Pil Choi & Byung-Cheol Kim, 2010. "Net neutrality and investment incentives," RAND Journal of Economics, RAND Corporation, vol. 41(3), pages 446-471.
  14. Glenn Ellison & Sara Fisher Ellison, 2004. "Search, Obfuscation, and Price Elasticities on the Internet," NBER Working Papers 10570, National Bureau of Economic Research, Inc.
  15. Varian, Hal R, 1980. "A Model of Sales," American Economic Review, American Economic Association, vol. 70(4), pages 651-59, September.
  16. Marco A. Haan & José L. Moraga‐González, 2011. "Advertising for Attention in a Consumer Search Model," Economic Journal, Royal Economic Society, vol. 121(552), pages 552-579, 05.
  17. Diamond, Peter A., 1971. "A model of price adjustment," Journal of Economic Theory, Elsevier, vol. 3(2), pages 156-168, June.
  18. Ryan C. McDevitt, 2014. "“A” Business by Any Other Name: Firm Name Choice as a Signal of Firm Quality," Journal of Political Economy, University of Chicago Press, vol. 122(4), pages 909 - 944.
  19. Michael R. Baye & John Morgan, 2001. "Information Gatekeepers on the Internet and the Competitiveness of Homogeneous Product Markets," American Economic Review, American Economic Association, vol. 91(3), pages 454-474, June.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:pra:mprapa:30529. 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: (Ekkehart Schlicht)

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.