Costly Buyer Search in Laboratory Markets with Seller Advertising

26 Pages Posted: 4 Jun 2010

See all articles by Timothy N. Cason

Timothy N. Cason

Purdue University - Krannert School of Management

Shakun D. Mago

affiliation not provided to SSRN

Abstract

In this experiment, sellers simultaneously choose prices and advertising strategies. Buyers either purchase at an advertised price or search sequentially for other prices. In the unique symmetric equilibrium, sellers charge a high unadvertised price or advertise a price chosen from a lower interval. Increases in search or advertising costs raise equilibrium prices and affect equilibrium advertising intensity. Empirical results are consistent with most comparative static predictions. Sellers, however, price much lower and advertise more intensely than predicted. Consequently, market outcomes more closely resemble a perfect information, Bertrand-like equilibrium than the imperfect information, mixed strategy equilibrium with significant seller market power.

Suggested Citation

Cason, Timothy N. and Mago, Shakun D., Costly Buyer Search in Laboratory Markets with Seller Advertising. The Journal of Industrial Economics, Vol. 58, No. 2, pp. 424-449, June 2010. Available at SSRN: https://ssrn.com/abstract=1615799 or http://dx.doi.org/10.1111/j.1467-6451.2010.00413.x

Timothy N. Cason (Contact Author)

Purdue University - Krannert School of Management ( email )

1310 Krannert Building
West Lafayette, IN 47907-1310
United States
765-494-1737 (Phone)

Shakun D. Mago

affiliation not provided to SSRN

No Address Available

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