Paying for prominence

Mark Armstrong and Jidong Zhou ()

MPRA Paper from University Library of Munich, Germany

Abstract: We investigate three ways in which firms can become "prominent" and thereby influence the order in which consumers consider options. First, firms can affect an intermediary's sales efforts by means of commission payments. When firms pay commission to a salesman, the salesman promotes the product with the highest commission, and steers ignorant consumers towards the more expensive product. Second, sellers can advertise prices on a price comparison website, so that consumers investigate the suitability of products in order of increasing price. In such a market, equilibrium prices are lower when search costs are higher since a firm's benefit from being investigated first increases with search costs. Finally, consumers might first consider their existing supplier when they purchase a new product, which suggests a relatively benign rationale for the prevalence of cross-selling in markets such as retail banking.

Keywords: Consumer search; e-commerce; price comparison websites; cross-selling; mis-selling; commission sales. (search for similar items in EconPapers)
JEL-codes: D83 L13 M31 (search for similar items in EconPapers)
Date: 2011-04-27
New Economics Papers: this item is included in nep-com and nep-mkt
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (123)

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Related works:
Journal Article: Paying for Prominence (2011)
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:30529

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