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Simultaneous Search for Differentiated Products: The Impact of Search Costs and Firm Prominence

Author

Listed:
  • Moraga-González, José-Luis
  • Sándor, Zsolt
  • Wildenbeest, Matthijs
Abstract
This paper extends the literature on simultaneous search by allowing for differentiated products and consumer search cost heterogeneity. In a duopolistic market, consumers with sufficiently low search costs choose to inspect the products of the two firms and purchase, if any, the most suitable; consumers with higher search costs choose to examine just one of the products; consumers with prohibitively high search costs do not check any of the products and drop out of the market altogether. We show conditions under which a symmetric price equilibrium always exists. We provide a necessary and sufficient condition on the search cost distribution under which an increase in the costs of search of all consumers may result in a lower, equal or higher equilibrium price. We extend this analysis to the case with more than two firms. The effects of prominence on equilibrium prices are also studied. The prominent firm charges a higher price than the non-prominent firm and both their prices are below the symmetric equilibrium price. Consequently, with simultaneous search, market prominence increases the surplus of consumers.

Suggested Citation

  • Moraga-González, José-Luis & Sándor, Zsolt & Wildenbeest, Matthijs, 2020. "Simultaneous Search for Differentiated Products: The Impact of Search Costs and Firm Prominence," CEPR Discussion Papers 14454, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:14454
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    Cited by:

    1. Atayev, Atabek, 2022. "Uncertain product availability in search markets," Journal of Economic Theory, Elsevier, vol. 204(C).
    2. Atayev, Atabek, 2023. "Information asymmetry and search intensity," ZEW Discussion Papers 23-043, ZEW - Leibniz Centre for European Economic Research.
    3. Li, Sanxi & Sun, Hailin & Yu, Jun, 2023. "Competitive targeted online advertising," International Journal of Industrial Organization, Elsevier, vol. 87(C).
    4. Makoto Hanazono & Noritaka Kudoh, 2024. "Prominence And Market Power: Asymmetric Oligopoly With Sequential Consumer Search," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 65(3), pages 1249-1281, August.
    5. Martin, Simon, 2020. "Market transparency and consumer search - Evidence from the German retail gasoline market," DICE Discussion Papers 350, Heinrich Heine University Düsseldorf, Düsseldorf Institute for Competition Economics (DICE).

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    More about this item

    Keywords

    Non-sequential search; Simultaneous search; Oligopoly; Search cost heterogeneity; Differentiated products; Non-uniform sampling; Prominence;
    All these keywords.

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games

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