Product Quality and Consumer Search

Moraga-González, José-Luis and Yajie Sun
Authors registered in the RePEc Author Service: Jose Luis Moraga-Gonzalez

No 14669, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: This paper carries out a positive and normative analysis of the provision of quality in a consumer search market for differentiated products. An increase in quality shifts up the distribution of match utilities offered by firms and makes consumers pickier. The typical number of products consumers inspect before settling, however, does not necessarily increase in quality. Higher search costs may lead to less investment in quality and, correspondingly, the equilibrium price may decrease in search costs. If the equilibrium is socially inefficient, it is only because of the inadequacy of quality investment. There is a one-to-one relationship between the intensity of search and the inefficiency of the market equilibrium. The market level of quality investment is excessive (insufficient) and consumers are too (little) picky from the point of view of welfare maximization if and only if a rise in quality results in consumers inspecting a higher (lower) number of products.

Keywords: Quality investment; Sequential search; Super- and sub-modular match value distributions; Efficiency (search for similar items in EconPapers)
JEL-codes: D43 D83 L13 (search for similar items in EconPapers)
Date: 2022-02
New Economics Papers: this item is included in nep-com, nep-ind and nep-mic
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Journal Article: Product Quality and Consumer Search (2023)
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