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Consumer Search and Retail Market Structure

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  • Rhodes, Andrew
  • Zhou, Jidong

Abstract

This paper proposes a framework for studying how consumer search frictions affect retail market structure. In our model single-product firms which supply different products can merge to form a multiproduct firm. Consumers wish to buy multiple products and value the one-stop shopping convenience associated with a multiproduct firm. We find that when the search friction is relatively large all firms are multiproduct in equilibrium. However when the search friction is smaller the equilibrium market structure is asymmetric, with single-product and multiproduct firms coexisting. This asymmetric market structure often leads to the weakest price competition, and is the worst for consumers among all possible market structures. Due to the endogeneity of market structure, a reduction in the search friction can increase market prices and decrease consumer welfare.

Suggested Citation

  • Rhodes, Andrew & Zhou, Jidong, 2016. "Consumer Search and Retail Market Structure," MPRA Paper 69484, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:69484
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    References listed on IDEAS

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    Cited by:

    1. Legros, Patrick & Stahl, Konrad O, 2019. "Local Search Markets and External Competition," CEPR Discussion Papers 13764, C.E.P.R. Discussion Papers.
    2. Greg Kaplan & Guido Menzio & Leena Rudanko & Nicholas Trachter, 2019. "Relative Price Dispersion: Evidence and Theory," American Economic Journal: Microeconomics, American Economic Association, vol. 11(3), pages 68-124, August.
    3. Fabra, Natalia & Montero, Juan Pablo, 2017. "Product Choice and Price Discrimination in Markets with Search Costs," CEPR Discussion Papers 12046, C.E.P.R. Discussion Papers.
    4. Johnson, Justin Pappas & Rhodes, Andrew, 2018. "Multiproduct Mergers and Quality Competition," TSE Working Papers 18-967, Toulouse School of Economics (TSE).

    More about this item

    Keywords

    consumer search; conglomerate merger; multiproduct pricing; one-stop shopping; retail market structure;

    JEL classification:

    • D11 - Microeconomics - - Household Behavior - - - Consumer Economics: Theory
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

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