Firm pricing with consumer search

Simon Anderson and Renault, Régis

No 11723, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: Economists could not properly capture the impact of internet on markets without a proper theory of consumer search. As a result, this theory has been rediscovered and developed further since the early 2000s. It can address such critical questions as the impact of reduced search cost on prices, variety, and product choice as well as advertising practices (such as search advertising). This theoretical development has also fed into a rich empirical literature exploiting the wealth of data that is now available regarding both consumers' and firms' online activity. The goal of this chapter is to present the basic concepts underpinning the theory of imperfectly competitive markets with consumer search. We stress that appropriate theoretical frameworks should involve sufficient heterogeneity among agents on both sides of the market. We also explain why the analysis of ordered search constitutes an essential ingredient for modeling recent search environments.

Keywords: Reservation rule; Diamond paradox; Sequential/simultaneous search; Random/ordered search; Price dispersion; Internet; Two-sided market; Product differentiation (search for similar items in EconPapers)
JEL-codes: D42 D82 D83 L11 L15 M37 M38 (search for similar items in EconPapers)
Date: 2016-12
New Economics Papers: this item is included in nep-com, nep-ind and nep-mkt
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Chapter: Firm pricing with consumer search (2018)
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