The Double Diamond Paradox

Daniel Garcia, Jun Honda and Maarten Janssen

American Economic Journal: Microeconomics, 2017, vol. 9, issue 3, 63-99

Abstract: We study vertical relations in markets with consumer and retailer search. We obtain three important new results. First, we provide a novel explanation for price dispersion that does not depend on some form of heterogeneity among consumers. Price dispersion takes on the form of a bimodal distribution. Second, under competitive conditions (many retailers or small consumer search cost), social welfare is significantly smaller than in the double marginalization outcome. Manufacturers' regular price is significantly above the monopoly price, squeezing retailers' markups and providing an alternative explanation for incomplete cost pass-through. Third, firms' prices are decreasing in consumer search cost.

JEL-codes: D11 D21 D43 D83 L13 L60 L81 (search for similar items in EconPapers)
Date: 2017
Note: DOI: 10.1257/mic.20150299
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Citations: View citations in EconPapers (10)

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Working Paper: The Double Diamond Paradox (2015)
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