Can Prominence Matter Even in an Almost Frictionless Market?

12 Pages Posted: 25 Oct 2011

See all articles by Andrew Rhodes

Andrew Rhodes

University of Toulouse 1 - Toulouse School of Economics (TSE)

Date Written: November 2011

Abstract

Consumer search on the Internet is rarely random. Sponsored links appear higher up a webpage and consumers often click them. Firms also bid aggressively for these ‘prominent’ positions at the top of the page. But why should prominence matter, when visiting an additional website is almost costless? I present a model in which consumers know their valuations for the products offered in the market but do not know which retailer sells which product. I show that a prominent retailer earns significantly more profit than other firms, even when the cost of searching websites and comparing products is essentially zero.

Suggested Citation

Rhodes, Andrew, Can Prominence Matter Even in an Almost Frictionless Market? (November 2011). The Economic Journal, Vol. 121, Issue 556, pp. F297-F308, 2011. Available at SSRN: https://ssrn.com/abstract=1948942 or http://dx.doi.org/10.1111/j.1468-0297.2011.02465.x

Andrew Rhodes (Contact Author)

University of Toulouse 1 - Toulouse School of Economics (TSE) ( email )

Place Anatole-France
Toulouse Cedex, F-31042
France

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