Abstract
An increase in quality shifts up the distribution of match utilities offered by firms and makes consumers pickier. The number of products that consumers inspect does not necessarily increase in quality. Higher search costs may lead to less quality investment, and the equilibrium price may decrease. If the equilibrium is inefficient, it is because of the inadequacy of quality investment. The market level of quality investment is excessive (insufficient) and consumers are too (little) picky from the point of view of welfare maximization if and only if a rise in quality results in consumers inspecting a higher (lower) number of products.
| Original language | English |
|---|---|
| Pages (from-to) | 117-141 |
| Number of pages | 25 |
| Journal | American Economic Journal: Microeconomics |
| Volume | 15 |
| Issue number | 1 |
| DOIs | |
| Publication status | Published - Feb 2023 |
Bibliographical note
Funding Information:* Moraga-González: Vrije Universiteit Amsterdam, Department of Economics, Télécom Paris, Tinbergen Institute, CEPR, CESifo, and the PPSRC Center (IESE, Barcelona)(email: [email protected]); Sun: APG Asset Management (email: [email protected]). John Asker was coeditor for this article. We thank three anonymous reviewers for their useful remarks. We also thank Heski Bar-Isaac, Garth Baughman, Pim Heijnen, Maarten Janssen, Vaiva Petrikaitė, Régis Renault, Zsolt Sándor, Rune Stenbacka, Jurre Thiel, Matthijs Wildenbeest, Jidong Zhou, and especially Marco Haan for providing us with useful observations. This paper has also benefited from presentations at the tenth Workshop on Consumer Search and Switching Costs (UCLA Anderson School of Management, July 2019), the tenth CRENoS-Uniss Workshop on Institution Individual Behavior and Economic Outcomes, EARIE 2017 (Maastricht), the MaCCI Annual Conference 2017 (University of Mannheim), and the first IO Workshop of the University of St. Gallen (November 2018). An earlier version of this paper was part of the second author’s doctoral dissertation at Vrije Universiteit Amsterdam and the Tinbergen Institute. Financial support from the Dutch Research Council (NWO grant no. 406-14-117) is gratefully acknowledged.
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