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Pricing, Consumer Search and the Size of Internet Markets

Author

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  • Maarten C.W. Janssen

    () (Erasmus University Rotterdam)

  • Jose Luis Moraga

    () (Groningen University)

Abstract

Despite the mixed empirical evidence, many economists stillhold to the view that Internet will promote competition betweenfirms,thereby lowering prices and increasing economic welfare. This paperpresents a search model that provides a different view. We analyzethemarket for a homogeneous good where some consumers are fully informedwhile others are not. Depending on the parameter values, there may bethree types of equilibria and the comparative statics results aredifferent for each of these equilibria. For example, a reduction insearch cost may raise equilibrium prices when consumers' searchintensity is low, but reduce prices when consumers search intensityis high. These different comparative statics results may explain themixed empirical evidence found so far.

Suggested Citation

  • Maarten C.W. Janssen & Jose Luis Moraga, 2000. "Pricing, Consumer Search and the Size of Internet Markets," Tinbergen Institute Discussion Papers 00-042/1, Tinbergen Institute.
  • Handle: RePEc:tin:wpaper:20000042
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    Cited by:

    1. Michael R. Baye & John Morgan & Patrick Scholten, 2006. "Persistent Price Dispersion in Online Markets," Chapters,in: The New Economy and Beyond, chapter 6 Edward Elgar Publishing.
    2. Glenn Ellison & Sara Fisher Ellison, 2009. "Search, Obfuscation, and Price Elasticities on the Internet," Econometrica, Econometric Society, vol. 77(2), pages 427-452, March.

    More about this item

    Keywords

    Internet; price dispersion; search; search agents;

    JEL classification:

    • D40 - Microeconomics - - Market Structure, Pricing, and Design - - - General
    • 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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