Consumer Search and Vertical Relations: The Triple Marginalization Problem
Maarten Janssen and
Authors registered in the RePEc Author Service: Alexander Michaelides and
Christos Koulovatianos ()
Vienna Economics Papers from University of Vienna, Department of Economics
This paper shows that the double marginalization problem signi cantly underestimates the ineciencies arising from vertical relations in markets where consumers who are uninformed about the wholesale arrangements be- tween manufacturers and retailers search for the best retail price. Consumer search provides manufacturers an additional incentive to substantially increase wholesale prices. Consequently, all market participants are worse o and we call this phenomenon the triple marginalization problem. We also show that, when the wholesale price is unknown, retail prices decrease and industry prof- its and consumer surplus increase in search cost, whereas the opposite is true when the wholesale price is known.
JEL-codes: D40 D83 L13 (search for similar items in EconPapers)
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Persistent link: http://EconPapers.repec.org/RePEc:vie:viennp:1206
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