Consumer Search and Retail Market Structure

44 Pages Posted: 12 Feb 2016

See all articles by Andrew Rhodes

Andrew Rhodes

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

Jidong Zhou

University College London - Department of Economics

Date Written: February 10, 2016

Abstract

This paper proposes a framework for studying how consumer search frictions affect retail market structure. In our model single-product firms which supply different products can merge to form a multiproduct firm. Consumers wish to buy multiple products and value the one-stop shopping convenience associated with a multiproduct firm. We find that when the search friction is relatively large all firms are multiproduct in equilibrium. However when the search friction is smaller the equilibrium market structure is asymmetric, with single-product and multiproduct firms coexisting. This asymmetric market structure often leads to the weakest price competition, and is the worst for consumers among all possible market structures. Due to the endogeneity of market structure, a reduction in the search friction can increase market prices and decrease consumer welfare.

Keywords: consumer search, conglomerate merger, multiproduct pricing, one-stop shopping, retail market structure

JEL Classification: D11, D43, D83, L13

Suggested Citation

Rhodes, Andrew and Zhou, Jidong, Consumer Search and Retail Market Structure (February 10, 2016). Available at SSRN: https://ssrn.com/abstract=2730846 or http://dx.doi.org/10.2139/ssrn.2730846

Andrew Rhodes (Contact Author)

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

Place Anatole-France
Toulouse Cedex, F-31042
France

Jidong Zhou

University College London - Department of Economics ( email )

Gower Street
London, WC1E 6BT
United Kingdom

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