DP11566 Ordered Consumer Search

Author(s): Mark Armstrong
Publication Date: October 2016
Keyword(s): advertising, consumer search, directed search, discrete choice, obfuscation, oligopoly, ordered search, sequential search
JEL(s): D21, D43, D83, L11, L15, M37
Programme Areas: Industrial Organization
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=11566

The paper discusses situations in which consumers search through their options in a deliberate order, in contrast to more familiar models with random search. Topics include: the existence of ordered search equilibria with symmetric sellers (all consumers first inspect the seller they anticipate sets the lowest price, and a seller which is inspected first by consumers will set the lowest price); the use of price and non-price advertising to direct search; the impact of consumers starting a new search at their previous supplier; and the incentive a seller can have to raise its own search cost. I also show how ordered search can be reformulated as a simpler discrete choice problem without search frictions or dynamic decision making.