Vertical product differentiation, prominence, and costly search

Arbeitspapier

In many markets, firms offering low-quality goods are more prominent than firms offering high-quality goods. Then, consumers are perfectly informed about the good of the prominent low-quality firm but incur search costs to bring the high-quality good of a competitor to mind. We analyze under which circumstances the less-prominent firm has an incentive to invest in high quality. We investigate two scenarios: (i) homogeneous and (ii) heterogeneous search costs. If search costs are homogeneous, the less-prominent firm produces highquality goods for sufficiently low search costs, and an increase in search costs reduces the range of values for which the less-prominent firm invests in high quality. In contrast, if search costs are heterogeneous, the less-prominent firm produces high-quality goods for sufficiently high search cost heterogeneity, and an increase in average search costs expands the range of values for which the less-prominent firm invests in high quality.

Object Details

• ISBN: 978-3-949224-11-9
• Language: Englisch

References and Relationships

• Bibliographic citation: Series: BERG Working Paper Series ; No. 190

Classification and Topics

• Classification: Wirtschaft ; Market Structure, Pricing, and Design: Oligopoly and Other Forms of Market Imperfection ; Search; Learning; Information and Knowledge; Communication; Belief; Unawareness ; Oligopoly and Other Imperfect Markets
• Subject: consideration sets ; duopoly ; prominence ; search costs ; vertical product differentiation

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Rozzi, Roberto ; Schmitt, Stefanie Y.
• Event: Veröffentlichung
• (who): Bamberg University, Bamberg Economic Research Group (BERG)
• (where): Bamberg
• (when): 2024

Further information

• Handle: http://hdl.handle.net/10419/283000
• Last update: 10.03.2025, 11:43 AM CET