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Author: Simon P. Anderson
Publisher:
ISBN:
Category : Advertising
Languages : en
Pages : 55
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Book Description
Economists could not properly capture the impact of internet on markets without a proper theory of consumer search. As a result, this theory has been rediscovered and developed further since the early 2000s. It can address such critical questions as the impact of reduced search cost on prices, variety, and product choice as well as advertising practices (such as search advertising). This theoretical development has also fed into a rich empirical literature exploiting the wealth of data that is now available regarding both consumers' and firms' online activity. The goal of this chapter is to present the basic concepts underpinning the theory of imperfectly competitive markets with consumer search. We stress that appropriate theoretical frameworks should involve sufficient heterogeneity among agents on both sides of the market. We also explain why the analysis of ordered search constitutes an essential ingredient for modeling recent search environments.
Author: Simon P. Anderson
Publisher:
ISBN:
Category : Advertising
Languages : en
Pages : 55
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Book Description
Economists could not properly capture the impact of internet on markets without a proper theory of consumer search. As a result, this theory has been rediscovered and developed further since the early 2000s. It can address such critical questions as the impact of reduced search cost on prices, variety, and product choice as well as advertising practices (such as search advertising). This theoretical development has also fed into a rich empirical literature exploiting the wealth of data that is now available regarding both consumers' and firms' online activity. The goal of this chapter is to present the basic concepts underpinning the theory of imperfectly competitive markets with consumer search. We stress that appropriate theoretical frameworks should involve sufficient heterogeneity among agents on both sides of the market. We also explain why the analysis of ordered search constitutes an essential ingredient for modeling recent search environments.
Author: Xing Zhang
Publisher:
ISBN:
Category : Electronic dissertations
Languages : en
Pages : 80
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Book Description
Essay I: A full equilibrium approach is proposed in this paper to estimate the distribution of consumer price search costs when (i) consumers adopt sequential or non-sequential search strategy and, (ii) consequently firms adopt a mixed pricing strategy. We model jointly the distributions of prices and sales when the market is at equilibrium. The major methodological challenge is that we have to model the distribution of prices instead of a single optimal price. To solve this problem, we use the non-parametric Maximum Empirical Likelihood estimator (Owen 1988) in model estimation. Through a series of simulation studies, we show that modeling the interplay between firms' pricing strategy and consumers' price search strategy is critical in order to correctly infer the search cost distribution. Finally, we apply the method to a dataset provided by a firm in a B-to-B market, and find that our model can explain the observed variation in prices and transactions, and recover reasonably well the supply cost of the firm. Essay II: In this paper we empirically examine the effect of buyers' cost of price search on firms' pricing strategy in a B-to-B market. We propose a full equilibrium approach to simultaneously model the observed price variation and transactions in the market, where buyers engage in costly price search and as a result firms adopt a mixed pricing strategy. Estimation results provide evidence that buyers in our data sequentially sample prices as this model out-performs another classical non-sequential search model in terms of recovering the "kink" price distribution (probability mass being highly concentrated at some price points) and the true supply cost in our data. We then illustrate how a lower search cost distribution (lower mean) can support a mixed price equilibrium with a higher average price, suggesting that the common belief of lower search costs leading to lower prices can be misleading. Finally, we extend our model framework to study how keyword search advertising may influence firms' prices and profits. By placing advertisement at the top of a search page, we assume an advertiser differentiates from other firms as the first place to start searching for some buyers. We find that the advertiser will charge the lowest price when the proportion of buyers using keyword search is from small to medium but, as the proportion further increases it will eventually charge at the highest price. Measuring the profit difference between the advertiser and non-advertising firms will help infer the willingness-to-pay for search advertising.
Author: Vartan Shadarevian
Publisher:
ISBN:
Category :
Languages : en
Pages : 0
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Book Description
To make sense of mixed empirical evidence on the pricing rigidity of cartels, this paper studies how colluding firms price their goods in a model where firms have private marginal costs and sell to consumers with search costs. In this model, firms repeatedly interact in selling a homogeneous good, and consumers pay a search cost to observe the full menu of prices in a market. While firms can agree on a collusive strategy that increases prices, they cannot coordinate perfectly on their responses to stochastic, idiosyncratic marginal cost shocks. The model highlights an important stability-efficiency trade-off that leads to differential pricing behavior which depends on firms' discount factors. Specifically, when firms are sufficiently impatient, stability is most important, and the optimal cartel equilibrium involves rigid pricing. In contrast, when firms are sufficiently patient, efficiency is more important, and at high search costs the optimal cartel may increase its price variance above monopoly levels to induce search and sort consumers to the lower cost firm. Applications to cartel screening are discussed.
Author: Simon P. Anderson
Publisher:
ISBN:
Category :
Languages : en
Pages : 0
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Book Description
We analyze the effect of consumer information on firm pricing in a model where consumers search for prices and matches with products. We consider two types of consumers. Uninformed consumers do not know in advance their match values with firms, whereas informed consumers do. Prices are lower the greater the proportion of uninformed consumers. Hence uninformed consumers exert a positive externality on the others, in contrast to standard results. This leads to socially excessive investment in gathering prior information when aggregate demand is price-sensitive.
Author: Patrick M. Emerson
Publisher:
ISBN:
Category : Economics
Languages : en
Pages :
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Book Description
Author: Erik Brynjolfsson
Publisher: MIT Press
ISBN: 9780262523301
Category : Business & Economics
Languages : en
Pages : 412
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Book Description
The rapid growth of electronic commerce, along with changes in information, computing, and communications, is having a profound effect on the United States economy. President Clinton recently directed the National Economic Council, in consultation with executive branch agencies, to analyze the economic implications of the Internet and electronic commerce domestically and internationally, and to consider new types of data collection and research that could be undertaken by public and private organizations. This book contains work presented at a conference held by executive branch agencies in May 1999 at the Department of Commerce. The goals of the conference were to assess current research on the digital economy, to engage the private sector in developing the research that informs investment and policy decisions, and to promote better understanding of the growth and socioeconomic implications of information technology and electronic commerce. Aspects of the digital economy addressed include macroeconomic assessment, organizational change, small business, access, market structure and competition, and employment and the workforce.
Author: José L. Moraga González
Publisher:
ISBN:
Category : Consumer behavior
Languages : en
Pages : 51
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Book Description
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. For arbitrary search cost distributions, when match values are assumed to be uniformly distributed, 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. 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. In an extension, we provide conditions under which the equilibrium of the N-firm model exists.
Author: Michael Ray Metzger
Publisher:
ISBN:
Category : Competition
Languages : en
Pages : 214
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Book Description
Author: Roland Benabou
Publisher:
ISBN:
Category : Prices
Languages : en
Pages : 62
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Book Description
Aggregate cost uncertainty, arising from real shocks or unanticipated inflation, reduces the informativeness of prices by scrambling relative and aggregate variations. But when agents can acquire additional information, such increased noise may in fact lead them to become better informed, and price competition will intensify. We examine these issues in a model of search with learning, where consumers search optimally from an unknown price distribution while firms price optimally given consumers' search rules. We show that the decisive factor in whether inflation variability increases or reduces the incentive to search, and thereby market efficiency, is the size of informational costs.
Author: Sajjad Najafi
Publisher:
ISBN:
Category :
Languages : en
Pages :
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Book Description
We study a firm offering a line of vertically differentiated perishable products with fixed initial inventory over a finite sales season. Consumers arrive at the firm randomly and inspect products sequentially until they find a product to purchase (if any). Consumers evaluate each product in terms of its overall utility revealed to them. Each consumer incurs a positive cost to inspect a product and hence may stop the sequential search without inspecting all the available items. Upon a product's inspection, the utility of the product is known to the consumer, who then decides whether to continue the search. We formulate the firm's and consumer's problems using stochastic dynamic programming and determine the consumers' optimal search decision, the firm's optimal price to charge for each product at each time and the optimal sequence in which to show the products to consumers. We show that consumers' optimal stopping rule, under certain conditions, is myopic and takes a threshold structure. We show that it is optimal for the firm to sequence products in decreasing order of product quality. We show that, in some cases, it is optimal for the firm to increase a perishable product's price over time. This result is in stark contrast to the common result from the literature that prices for perishable products should be reduced over time. However, the fact that a consumer may not be able to see all products during the search can cause the opposite price behavior.
