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Multiproduct pricing and the Diamond Paradox

  • Rhodes, Andrew

We study the pricing behavior of a multiproduct monopolist, when consumers must pay a search cost to learn its prices. Equilibrium prices are high because rational consumers understand that visiting the store exposes them to a hold-up problem. However a firm with more products attracts more consumers with low valuations, and therefore charges lower prices. We also show that when the firm advertises the price of one product, it provides consumers with some indirect information about all of its other prices. The firm can therefore build a store-wide ‘low-price image’ by advertising just one product at a low price.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 32511.

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Date of creation: 08 Jul 2011
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Handle: RePEc:pra:mprapa:32511
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  19. Weinstein, Jonathan & Ambrus, Attila, 2008. "Price Dispersion and Loss Leaders," Scholarly Articles 4589708, Harvard University Department of Economics.
  20. Stahl, Dale O, II, 1989. "Oligopolistic Pricing with Sequential Consumer Search," American Economic Review, American Economic Association, vol. 79(4), pages 700-712, September.
  21. Joel Waldfogel & Jeffrey Milyo, 1999. "The Effect of Price Advertising on Prices: Evidence in the Wake of 44 Liquormart," American Economic Review, American Economic Association, vol. 89(5), pages 1081-1096, December.
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  27. repec:hrv:faseco:4685158 is not listed on IDEAS
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