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Consumer Search Markets with Costly Second Visits

Maarten C.W. Janssen () and Alexei Parakhonyak
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Maarten C.W. Janssen: http://www.univie.ac.at/Wirtschaftswissenschaften

Vienna Economics Papers from University of Vienna, Department of Economics

Abstract: This is the first paper on consumer search where the cost of going back to stores already searched is explicitly taken into account. We show that the optimal sequential search rule under costly second visits is very different from the traditional reservation price rule in that it is nonstationary and not independent of previously sampled prices. We explore the implications of costly second visits on market equilibrium in two celebrated search models. In the Wolinsky model some consumers search beyond the first firm and in this class of models costly second visits do make a substantive difference: equilibrium prices under costly second visits can both be higher and lower than their perfect recall analogues. In the oligopoly search model of Stahl where consumers do not search beyond the first firm, there remains a unique symmetric equilibrium that has firms use pricing strategies that are identical to the perfect recall case.

JEL-codes: D11 D40 D83 L13 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-com, nep-mic and nep-mkt
Date: 2011-01
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Persistent link: http://EconPapers.repec.org/RePEc:vie:viennp:1102

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