DP14454 Simultaneous Search for Differentiated Products: The Impact of Search Costs and Firm Prominence

Author(s): José-Luis Moraga-González, Zsolt Sándor, Matthijs Wildenbeest
Publication Date: February 2020
Date Revised: May 2020
Keyword(s): differentiated products, non-sequential search, non-uniform sampling, oligopoly, Prominence, Search cost heterogeneity, simultaneous search
JEL(s): C72, D43
Programme Areas: Industrial Organization
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=14454

This paper extends the literature on simultaneous search by allowing for differentiated products and consumer search cost heterogeneity. In a duopolistic market, consumers with sufficiently low search costs choose to inspect the products of the two firms and purchase, if any, the most suitable; consumers with higher search costs choose to examine just one of the products; consumers with prohibitively high search costs do not check any of the products and drop out of the market altogether. We show conditions under which a symmetric price equilibrium always exists. We provide a necessary and sufficient condition on the search cost distribution under which an increase in the costs of search of all consumers may result in a lower, equal or higher equilibrium price. We extend this analysis to the case with more than two firms. The effects of prominence on equilibrium prices are also studied. The prominent firm charges a higher price than the non-prominent firm and both their prices are below the symmetric equilibrium price. Consequently, with simultaneous search, market prominence increases the surplus of consumers.