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Consumer Search and Vertical Relations: The Triple Marginalization Problem

Maarten Janssen and Sandro Shelegia
Authors registered in the RePEc Author Service: Alexander Michaelides and Christos Koulovatianos ()

Vienna Economics Papers from University of Vienna, Department of Economics

Abstract: This paper shows that the double marginalization problem signi cantly underestimates the ineciencies arising from vertical relations in markets where consumers who are uninformed about the wholesale arrangements be- tween manufacturers and retailers search for the best retail price. Consumer search provides manufacturers an additional incentive to substantially increase wholesale prices. Consequently, all market participants are worse o and we call this phenomenon the triple marginalization problem. We also show that, when the wholesale price is unknown, retail prices decrease and industry prof- its and consumer surplus increase in search cost, whereas the opposite is true when the wholesale price is known.

JEL-codes: D40 D83 L13 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-eec and nep-pbe
Date: 2012-10
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