A Model of Directed Consumer Search
44 Pages Posted: 21 Apr 2017
Date Written: April 2017
Abstract
We present a framework to study directed consumer search. Firms sell products with two attributes. One is readily observable, the other only after visiting a firm. Search is directed as the order of search is influenced by the observable characteristics. Moreover, if prices are readily observable, firms also influence search direction by their choice of price. We show that when consumers observe prices before search, prices and profits are lower than when they do not. A lower price then not only retains more consumers, but is also more likely to attract them; the latter effect makes demand more elastic. When prices are observable before search, prices decrease in search costs. Consumer surplus initially increases in search costs, but may ultimately decrease.
Keywords: differentiated products, ordered/directed search, price observability
JEL Classification: D83, L13
Suggested Citation: Suggested Citation
Do you have a job opening that you would like to promote on SSRN?
A Model of Directed Consumer Search
This is a CEPR Discussion Paper. CEPR charges a fee of $8.00 for this paper.
If you wish to purchase the right to make copies of this paper for distribution to others, please select the quantity.
