Multiproduct Firms, Consumer Search, and Demand Heterogeneity

16 Pages Posted: 19 Mar 2018 Last revised: 10 Jan 2020

See all articles by Yuta Kittaka

Yuta Kittaka

Graduate School of Economics, Kobe University (JSPS Postdoctoral Research Fellow)

Date Written: October 28, 2019

Abstract

This study constructs a consumer search model in which some consumers search for multiple products, whereas others search for a single product. A price difference arises because of a difference in the price elasticity for each group. We show that a positive demand shock to one of the products decreases the price of another product, whereas it increases its own price, and a negative correlation between the demands for each product strengthens these tendencies. Both prices decrease, however, following a positive demand shock when the demands for each product are positively correlated. We also show that multiproduct firms set a relatively high price for a more demanded product, as such a product's price tends to be more elastic with respect to search costs. A price difference between products increases as the demand gap between products increases or as economies of scale in search increase.

Keywords: consumer search, multiproduct pricing, demand heterogeneity

JEL Classification: D11, D43, D83, L13

Suggested Citation

Kittaka, Yuta, Multiproduct Firms, Consumer Search, and Demand Heterogeneity (October 28, 2019). ISER Discussion Paper No. 1024, Available at SSRN: https://ssrn.com/abstract=3140231 or http://dx.doi.org/10.2139/ssrn.3140231

Yuta Kittaka (Contact Author)

Graduate School of Economics, Kobe University (JSPS Postdoctoral Research Fellow) ( email )

Hyogo Prefecture
Japan

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