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Consumer search markets with costly revisits

Maarten Janssen and Alexei Parakhonyak

Economic Theory, 2014, vol. 55, issue 2, 514 pages

Abstract: This paper characterizes equilibrium outcomes in consumer search markets taking the cost of going back to stores already searched explicitly into account. We show that the optimal sequential search rule under costly revisits is very different from the traditional reservation price rule in that it is non-stationary and not independent of previously sampled prices. We explore the implications of costly revisits on market equilibrium in two celebrated search models. In the Wolinsky model, some consumers search beyond the first firm. In this class of models, costly revisits do make a substantive difference and their impact can be of the same order of magnitude as the initial search cost. In the Stahl oligopoly search model where consumers do not search beyond the first firm, there remains a unique symmetric equilibrium that has firms use pricing strategies that are identical to the perfect recall case. Copyright Springer-Verlag Berlin Heidelberg 2014

Keywords: Search; Costly revisits; Oligopoly; Competition; D11; D40; D83; L13 (search for similar items in EconPapers)
Date: 2014
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DOI: 10.1007/s00199-013-0761-3

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