New product introduction and diffusion with costly search
Will the low search cost in the new economy help speed up new product introduction? The usual model of product market search suggests that a low search cost can turn out to have detrimental incentives on innovation and new product introduction as the low search cost erodes firms' market power, attenuating the profit from innovation. This usual model, however, misses the important dimension of product market search that how often it pays to search depends on the magnitude of the search cost. This paper studies a model of monopolistic competition with costly search, where the point of departure is that of a fixed cost of a shopping trip. With this fixed cost, the optimal search frequency is tied to the magnitude of the search cost. In this environment, a low search cost could turn out to be favorable to innovation. At a low search cost, consumers search more often, speeding up the diffusion of new products and possibly resulting in higher profits for firms, despite the erosion of market power.
|Date of creation:||2004|
|Date of revision:|
|Contact details of provider:|| Postal: Society for Economic Dynamics Marina Azzimonti Department of Economics Stonybrook University 10 Nicolls Road Stonybrook NY 11790 USA|
Web page: http://www.EconomicDynamics.org/
More information through EDIRC
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.:
- Boyan Jovanovic & Peter L. Rousseau, 2000.
"Vintage organization capital,"
Federal Reserve Bank of San Francisco, issue Apr.
- Pereira, Pedro, 2001. "Market power, cost reduction and consumer search," International Journal of Industrial Organization, Elsevier, vol. 19(9), pages 1457-1473, November.
- 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.
- Kohn, Meir G. & Shavell, Steven, 1974. "The theory of search," Journal of Economic Theory, Elsevier, vol. 9(2), pages 93-123, October.
- Tse, C.Y.Chung Yi, 2004. "Search frictions, market power, and long-run growth," Journal of Economic Theory, Elsevier, vol. 116(2), pages 323-346, June.
When requesting a correction, please mention this item's handle: RePEc:red:sed004:237. 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: (Christian Zimmermann)
If references are entirely missing, you can add them using this form.