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A Search Theory of Retail Market Structure

Author

Listed:
  • Jidong Zhou

    (NYU Stern School of Business)

  • Andrew Rhodes

    (Toulouse School of Economics)

Abstract

This paper studies how consumer multiproduct shopping and search frictions jointly affect retail market structure. Single-product shops with different products can merge to form a multiproduct retailer. By doing this, they provide one-stop shopping convenience and thus attract more consumers. However, the conglomerate merger also changes the market structure and affects price competition. We fi…nd that an asymmetric market structure with one multiproduct retailer and smaller single-product competitors often leads to the weakest price competition. We solve for the equilibrium market structure, and show that it is asymmetric whenever the search friction is not too high. Conglomerate merger which leads to such an asymmetric market structure often raises market prices and harms consumers. Due to the endogeneity of the market structure, reducing the search friction does not necessarily induce lower market prices and higher consumer welfare.

Suggested Citation

  • Jidong Zhou & Andrew Rhodes, 2015. "A Search Theory of Retail Market Structure," 2015 Meeting Papers 409, Society for Economic Dynamics.
    • Handle: RePEc:red:sed015:409
    as

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    References listed on IDEAS

    as
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