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Consumer Search and Vertical Relations: The Triple Marginalization Problem

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Abstract

This paper shows that the double marginalization problem signi cantly underestimates the ineciencies arising from vertical relations in markets where consumers who are uninformed about the wholesale arrangements be- tween manufacturers and retailers search for the best retail price. Consumer search provides manufacturers an additional incentive to substantially increase wholesale prices. Consequently, all market participants are worse o and we call this phenomenon the triple marginalization problem. We also show that, when the wholesale price is unknown, retail prices decrease and industry prof- its and consumer surplus increase in search cost, whereas the opposite is true when the wholesale price is known.

Suggested Citation

  • Maarten Janssen & Sandro Shelegia, 2012. "Consumer Search and Vertical Relations: The Triple Marginalization Problem," Vienna Economics Papers 1206, University of Vienna, Department of Economics.
  • Handle: RePEc:vie:viennp:1206
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    Cited by:

    1. Moraga-González, José L. & Sándor, Zsolt & Wildenbeest, Matthijs R., 2014. "Prices, Product Differentiation, And Heterogeneous Search Costs," IESE Research Papers D/1097, IESE Business School.
    2. Jose L. Moraga-Gonzalez, 2015. "Prices, Product Differentiation, and Heterogeneous Search Costs," 2015 Meeting Papers 335, Society for Economic Dynamics.

    More about this item

    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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