Multiproduct pricing and the Diamond Paradox

Andrew Rhodes ()

MPRA Paper from University Library of Munich, Germany

Abstract: We study the pricing behavior of a multiproduct monopolist, when consumers must pay a search cost to learn its prices. Equilibrium prices are high because rational consumers understand that visiting the store exposes them to a hold-up problem. However a firm with more products attracts more consumers with low valuations, and therefore charges lower prices. We also show that when the firm advertises the price of one product, it provides consumers with some indirect information about all of its other prices. The firm can therefore build a store-wide ‘low-price image’ by advertising just one product at a low price.

Keywords: multiproduct search; advertising (search for similar items in EconPapers)
JEL-codes: D83 M3 M37 (search for similar items in EconPapers)
Date: 2011-07-08
New Economics Papers: this item is included in nep-bec, nep-com and nep-mkt
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:32511

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