Prominence and Consumer Search: The Case With Multiple Prominent Firms

Zhou, Jidong (2009): Prominence and Consumer Search: The Case With Multiple Prominent Firms.

Abstract

This paper extends Armstrong, Vickers, and Zhou (2007) to the case with multiple prominent firms. All consumers first search among prominent firms, and if their products are not satisfactory, they continue to search among non-prominent ones. Prominent firms will charge a lower price than their non-prominent rivals as in the case with a single prominent firm, but relative to the situation without any prominent firm, the presence of more than one prominent firm can induce all firms to raise their prices. We also characterize how market prices and welfare vary with the number of prominent firms.

• Item Type: MPRA Paper
• Language: English
• Keywords: consumer search, marketing, prominence, product differentiation
• Subjects: L - Industrial Organization > L1 - Market Structure, Firm Strategy, and Market Performance > L13 - Oligopoly and Other Imperfect Markets; D - Microeconomics > D8 - Information, Knowledge, and Uncertainty > D83 - Search ; Learning ; Information and Knowledge ; Communication ; Belief ; Unawareness; D - Microeconomics > D4 - Market Structure, Pricing, and Design > D43 - Oligopoly and Other Forms of Market Imperfection

References

Anderson, S., and R. Renault (1999): “Pricing, Product Diversity, and Search Costs: A Bertrand-Chamberlin-Diamond Model,” RAND Journal of Economics, 30(4), 719—735.

Arbatskaya, M. (2007): “Ordered Search,” RAND Journal of Economics, 38(1), 119—126.

Armstrong, M., J. Vickers, and J. Zhou (2007): “Prominence and Consumer Search,” Rand Journal of Economics, forthcoming.

Athey, S., and G. Ellison (2007): “Position Auctions with Consumer Search,” mimeo.

Bagwell, K., and G. Ramey (1994): “Coordination Economies, Advertising, and Search Behavior in Retail Markets,” American Economic Review, 84(3), 498—517.

Borgers, T., I. Cox, M. Pesendorfer, and V. Petricek (2006): “Equilibrium Bids in Auctions of Sponsored Links: Theory and Evidence,” mimeo.

Chen, Y., and C. He (2006): “Paid Placement: Advertising and Search on the Internet,” mimeo.

Edelman, B., M. Ostrovsky, and M. Schwarz (2007): “Internet Advertising and the Generalized Second Price Auction: Selling Billions of Dollars Worth of Keywords,” American Economic Review, 97(1), 242—259.

Einav, L., and L. Yariv (2006): “What’s in a Surname? The Effects of Surname Initials on Academic Success,” Journal of Economic Perspective, 20(1), 175—188.

Fiske, S. T., and S. E. Taylor (1991): Social Cognition. McGraw-Hill, New York, second edn.

Hann, M., and J. Moraga-Gonzalez (2007): “Advertising for Attention,” mimeo.

Ho, D., and K. Imai (2006): “Randomization Inference With Natural Experiments: An Analysis of Ballot Effects in the 2003 California Recall Election,” Journal of the American Statistical Association, 101(475), 888—900.

Kohn, M. G., and S. Shavell (1974): “The Theory of Search,” Journal of Economic Theory, 9(2), 93—123.

Lohse, G. L. (1997): “Consumer Eye Movement Patterns on Yellow Pages Advertising,” Journal of Advertising, 26(1), 61—73.

Madrian, B. C., and D. F. Shea (2001): “The Power of Suggestion: Inertia in 401(K) Participation and Savings Behavior,” Quarterly Journal of Economics, 116(4), 1149— 1187.

Meredith, M., and Y. Salant (2007): “The Causes and Consequences of Ballot Order-Effects,” mimeo.

Perry, M., and A. Wigderson (1986): “Search in a Known Pattern,” Journal of Political Economy, 94(1), 225—230.

Varian, H. R. (2007): “Position Auctions,” International Journal of Industrial Organization, 25(6), 1163—1187.

Weitzman, M. L. (1979): “Optimal Search for the Best Alternative,” Econometrica, 47(3), 641—654.

Wilson, C. (2008): “Ordered Search and Equilibrium Obfuscation,” mimeo.

Wolinsky, A. (1986): “True Monopolistic Competition as a Result of Imperfect Information,” Quarterly Journal of Economics, 101(3), 493—511. 29