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A Model of Directed Consumer Search

Marco Haan (), Moraga-Gonz�lez, Jos�-Luis and Vaiva Petrikaite

No 11955, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: We present a framework to study directed consumer search. Firms sell products with two attributes. One is readily observable, the other only after visiting a firm. Search is directed as the order of search is influenced by the observable characteristics. Moreover, if prices are readily observable, firms also influence search direction by their choice of price. We show that when consumers observe prices before search, prices and profits are lower than when they do not. A lower price then not only retains more consumers, but is also more likely to attract them; the latter effect makes demand more elastic. When prices are observable before search, prices decrease in search costs. Consumer surplus initially increases in search costs, but may ultimately decrease.

Keywords: differentiated products; ordered/directed search; price observability (search for similar items in EconPapers)
JEL-codes: D83 L13 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-com, nep-mic and nep-mkt
Date: 2017-04
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