Searching for Service

Maarten C. W. Janssen and T. Tony Ke

American Economic Journal: Microeconomics, 2020, vol. 12, issue 1, 188-219

Abstract: Since Telser (1960), there is a well-established argument that a competitive market will not provide service due to freeriding. We show that with search frictions, the market may well provide service if the cost of doing so is not too large. Any market equilibrium with service provision has two or more firms providing service, implying overprovision of service as the social optimum mandates at most one service provider. Firms that provide service and those that do not can coexist, where consumers direct their search to service providers first to obtain service, and to nonservice providers later to enjoy lower prices.

JEL-codes: D11 D21 D83 L42 L81 (search for similar items in EconPapers)
Date: 2020
References: Add references at CitEc
Citations: View citations in EconPapers (8)

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DOI: 10.1257/mic.20180315

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