Consumer Search and Retail Market Structure

Andrew Rhodes () and Jidong Zhou ()

MPRA Paper from University Library of Munich, Germany

Abstract: This paper proposes a framework for studying how consumer search frictions affect retail market structure. In our model single-product firms which supply different products can merge to form a multiproduct firm. Consumers wish to buy multiple products and value the one-stop shopping convenience associated with a multiproduct firm. We find that when the search friction is relatively large all firms are multiproduct in equilibrium. However when the search friction is smaller the equilibrium market structure is asymmetric, with single-product and multiproduct firms coexisting. This asymmetric market structure often leads to the weakest price competition, and is the worst for consumers among all possible market structures. Due to the endogeneity of market structure, a reduction in the search friction can increase market prices and decrease consumer welfare.

Keywords: consumer search; conglomerate merger; multiproduct pricing; one-stop shopping; retail market structure (search for similar items in EconPapers)
JEL-codes: D11 D43 D83 L13 (search for similar items in EconPapers)
Date: 2016-02
New Economics Papers: this item is included in nep-com, nep-ind, nep-mic, nep-mkt and nep-ure
References: Add references at CitEc
Citations: View citations in EconPapers (6)

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Related works:
Journal Article: Consumer Search and Retail Market Structure (2019)
Working Paper: Consumer Search and Retail Market Structure (2018)
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:69484

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