Searching for Service

American Economic Journal: Microeconomics (Forthcoming)

MIT Sloan Research Paper No. 5507-18

48 Pages Posted: 26 Jul 2018 Last revised: 2 Jun 2019

See all articles by Maarten Janssen

Maarten Janssen

University of Vienna - Faculty of Business, Economics, and Statistics

T. Tony Ke

Massachusetts Institute of Technology (MIT) - Sloan School of Management

Date Written: September 23, 2018

Abstract

Since Telser (1960), there is a well-established argument that a competitive market will not provide service due to free-riding. We show that with search frictions, the market may well provide service if the cost of doing so is not too large. Any market equilibrium with service provision has two or more firms providing service, implying over-provision of service as the social optimum mandates at most one service provider. Firms that provide service and those that do not can co-exist, where consumers direct their search to service providers first to obtain service, and to non-service providers later to enjoy lower prices.

Keywords: Service Provision, Consumer Search, Product Differentiation

JEL Classification: D40, D83, L10

Suggested Citation

Janssen, Maarten C. W. and Ke, Tony, Searching for Service (September 23, 2018). American Economic Journal: Microeconomics (Forthcoming); MIT Sloan Research Paper No. 5507-18. Available at SSRN: https://ssrn.com/abstract=3209958 or http://dx.doi.org/10.2139/ssrn.3209958

Maarten C. W. Janssen

University of Vienna - Faculty of Business, Economics, and Statistics ( email )

Vienna, A-1210
Austria

Tony Ke (Contact Author)

Massachusetts Institute of Technology (MIT) - Sloan School of Management ( email )

100 Main Street
E62-416
Cambridge, MA 02142
United States

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