Consumer Search and Double Marginalization

Maarten Janssen and Sandro Shelegia

American Economic Review, 2015, vol. 105, issue 6, 1683-1710

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. Consumer 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 D11, D42, D83, L12, L25, L60, L81)

JEL-codes: D11 D42 D83 L12 L25 L60 L81 (search for similar items in EconPapers)
Date: 2015
Note: DOI: 10.1257/aer.20121317
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Citations: View citations in EconPapers (35)

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Working Paper: Consumer Search and Double Marginalization (2014)
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