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

JL Moraga Gonzalez, Zsolt Sándor, Matthijs Wildenbeest

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Abstract

We extend the literature on simultaneous search by allowing for differentiated products and search cost heterogeneity. We show conditions under which a symmetric price equilibrium exists. We provide a necessary and sufficient condition under which an increase in search costs 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, market prominence increases the consumers’ surplus.
Original languageEnglish
Pages (from-to)1308–1330
Number of pages23
JournalThe Economic Journal
Volume131
Issue number635
Early online date11 Jun 2020
DOIs
Publication statusPublished - Apr 2021

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