Consumer Search and Double Marginalization

Maarten Janssen () and Sandro Shelegia
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Maarten Janssen: https://econ.univie.ac.at

Vienna Economics Papers from University of Vienna, Department of Economics

Abstract: The well-known double marginalization problem understates the inefficiencies arising from vertical relations in consumer search markets where consumers are uninformed about the wholesale prices charged by manufacturers to retailers. Con- sumer search provides a monopoly manufacturer with an additional incentive to increase its price, worsening the double marginalization problem and lowering the manufacturer's profits. Nevertheless, manufacturers in more competitive wholesale markets may not have an incentive to reveal their prices to consumers. We show that retail prices decrease in search cost, and so both industry profits and consumer surplus increase in search cost.

JEL-codes: D40 D83 L13 (search for similar items in EconPapers)
Date: 2014-12
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Journal Article: Consumer Search and Double Marginalization (2015)
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