Arbeitspapier
Prices, Product Differentiation, and Heterogeneous Search Costs
We study price formation in the standard model of consumer search for differentiated products but allow for search cost heterogeneity. In doing so, we dispense with the usual assumption that all consumers search at least once in equilibrium. This allows us to analyze the manner in which prices affect the decision to search rather than to not search at all, which is an important but often neglected aspect of the price mechanism. Recognizing the role the equilibrium price plays in consumers' participation decisions turns out to be critical for understanding how search costs affect market power. This is because the two margins that determine prices|the intensive search margin, or search intensity, and the extensive search margin, or search participation|may be affected in opposing directions by a change in search costs. When search costs go up, fewer consumers decide to search, which modifies the search composition of demand such that demand can become more elastic. At the same time, the consumers who choose to search reduce their search intensity, which makes demand less elastic. Whether the effect on the extensive or the intensive search margin dominates depends on the range and shape of the search cost density. We identify conditions for higher search costs to result in higher, constant, or lower prices. Similar results are obtained when the marginal gains from search vary across consumers.
- Sprache
-
Englisch
- Erschienen in
-
Series: Tinbergen Institute Discussion Paper ; No. 14-080/VII
- Klassifikation
-
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
- Thema
-
sequential search
search cost heterogeneity
differentiated products
existence and uniqueness of equilibrium
- Ereignis
-
Geistige Schöpfung
- (wer)
-
Moraga-González, José L.
Sándor, Zsolt
Wildenbeest, Matthijs R.
- Ereignis
-
Veröffentlichung
- (wer)
-
Tinbergen Institute
- (wo)
-
Amsterdam and Rotterdam
- (wann)
-
2014
- Handle
- Letzte Aktualisierung
-
10.03.2025, 11:43 MEZ
Datenpartner
ZBW - Deutsche Zentralbibliothek für Wirtschaftswissenschaften - Leibniz-Informationszentrum Wirtschaft. Bei Fragen zum Objekt wenden Sie sich bitte an den Datenpartner.
Objekttyp
- Arbeitspapier
Beteiligte
- Moraga-González, José L.
- Sándor, Zsolt
- Wildenbeest, Matthijs R.
- Tinbergen Institute
Entstanden
- 2014
Ähnliche Objekte (12)
Capacity Choice under Uncertainty with Product Differentiation
Network Formation under Heterogeneous Costs: The Multiple Group Model
Prices, Product Differentiation, and Heterogeneous Search Costs
Unemployment and Search Externalities in a Model with Heterogeneous Jobs and Heterogeneous Workers
Coarse Tolling with Heterogeneous Preferences
Transaction Costs in Housing Markets
Gift-Exchange, Incentives, and Heterogeneous Workers
Heterogeneous Agent Models in Economics and Finance
Heterogeneous Agent Models: Two Simple Case Studies
Price Differentiation and Discrimination in Transport Networks
Transaction Management: Value Creation by Reducing Transaction Costs
Product Differentiation on Roads: Second-Best Congestion Pricing with Heterogeneity under Public and Private Ownership
Capacity Choice under Uncertainty with Product Differentiation
Network Formation under Heterogeneous Costs: The Multiple Group Model
Prices, Product Differentiation, and Heterogeneous Search Costs
Unemployment and Search Externalities in a Model with Heterogeneous Jobs and Heterogeneous Workers
Coarse Tolling with Heterogeneous Preferences
Transaction Costs in Housing Markets
Gift-Exchange, Incentives, and Heterogeneous Workers
Heterogeneous Agent Models in Economics and Finance
Heterogeneous Agent Models: Two Simple Case Studies
Price Differentiation and Discrimination in Transport Networks
Transaction Management: Value Creation by Reducing Transaction Costs
Product Differentiation on Roads: Second-Best Congestion Pricing with Heterogeneity under Public and Private Ownership
Capacity Choice under Uncertainty with Product Differentiation
Network Formation under Heterogeneous Costs: The Multiple Group Model
Prices, Product Differentiation, and Heterogeneous Search Costs
Unemployment and Search Externalities in a Model with Heterogeneous Jobs and Heterogeneous Workers
Coarse Tolling with Heterogeneous Preferences
Transaction Costs in Housing Markets
Gift-Exchange, Incentives, and Heterogeneous Workers
Heterogeneous Agent Models in Economics and Finance
Heterogeneous Agent Models: Two Simple Case Studies
Price Differentiation and Discrimination in Transport Networks
Transaction Management: Value Creation by Reducing Transaction Costs