We propose a model of price competition where consumers exogenously differ in the number of prices they compare. Our model can be interpreted either as a non–sequential search model or as a network model of price competition. We show that i) if consumers who previously just sampled one firm start to compare more prices all types of consumers will expect to pay a lower price and ii) if consumers who already sampled more than one price sample (even) more prices then there exists a threshold –the informational divide– such that all consumers comparing fewer prices than this threshold will expect to pay a higher price whereas all consumers comparing more prices will expect to pay a lower price than before. Thus increased search can create a negative externality and it is not necessarily beneficial for all consumers.

The Informational Divide

PASINI, Giacomo;
2013-01-01

Abstract

We propose a model of price competition where consumers exogenously differ in the number of prices they compare. Our model can be interpreted either as a non–sequential search model or as a network model of price competition. We show that i) if consumers who previously just sampled one firm start to compare more prices all types of consumers will expect to pay a lower price and ii) if consumers who already sampled more than one price sample (even) more prices then there exists a threshold –the informational divide– such that all consumers comparing fewer prices than this threshold will expect to pay a higher price whereas all consumers comparing more prices will expect to pay a lower price than before. Thus increased search can create a negative externality and it is not necessarily beneficial for all consumers.
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Utilizza questo identificativo per citare o creare un link a questo documento: https://hdl.handle.net/10278/36066
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