Costly Buyer Search in a Differentiated Products Model: An Experimental Study

Shakun Mago

Southern Economic Journal, 2010, vol. 77, issue 2, 282-312

Abstract: This study examines whether the content of buyer information and the timing of its dissemination affects seller market power. We construct laboratory markets with differentiated goods and costly buyer search in which sellers simultaneously post prices. The experiment varies the information on price or product characteristics that buyers learn under different timing assumptions (pre‐ and postsearch), generating four information treatments. Theory predicts that price information lowers the equilibrium price, but information about product characteristics increases the equilibrium price. That is, contrary to intuition, the presence of informed buyers may impart a negative externality on other uninformed buyers. Data support the model's negative externality result when sellers face a large number of robot buyers that are programmed to search optimally. Observed prices conform to the model's comparative statics and are broadly consistent with predicted levels. With human buyers, however, excessive search instigates increased price competition, and sellers post prices that are significantly lower than predicted.

Date: 2010
References: Add references at CitEc
Citations:

Downloads: (external link)
https://doi.org/10.4284/sej.2010.77.2.282

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:wly:soecon:v:77:y:2010:i:2:p:282-312

Access Statistics for this article

More articles in Southern Economic Journal from John Wiley & Sons
Bibliographic data for series maintained by Wiley Content Delivery ().