equilibrium price dispersion with heterogeneous searchers abstract firms simultaneously set prices in a homogeneous product market where uninformed consumers search for price information some uninformed consumers are local searchers who visit only one seller whereas others search sequentially with an optimal reservation price equilibrium prices may follow a mixture distribution with clusters of high and low prices separated by a zero density gap when the exogenous reservation price of local searchers depart from that of the optimizing sequential searchers by a relatively small amount the presence of local searchers either has no effect on market outcomes or benefits all consumers a reduction in search cost sometimes leads to higher equilibrium prices

position auctions with consumer search this paper examines a model in which advertisers bid for sponsored link positions on a search engine the value advertisers derive from each position is endogenized as coming from sales to a population of consumers who make rational inferences about rm qualities and search optimally consumer search strategies equilibrium bidding and the welfare benets of position auctions are analyzed implications for reserve prices and a number of other auction design questions are discussed

frictionless commerce a comparison of internet and conventional retailers there have been many claims that the internet represents a new nearly frictionless market our research empirically analyzes the characteristics of the internet as a channel for two categories of homogeneous products books and cds using a data set of over 8 500 price observations collected over a period of 15 months we compare pricing behavior at 41 internet and conventional retail outlets we find that prices on the internet are 9 16 lower than prices in conventional outlets depending on whether taxes shipping and shopping costs are included in the price additionally we find that internet retailers price adjustments over time are up to 100 times smaller than conventional retailers price adjustments presumably reflecting lower menu costs in internet channels we also find that levels of price dispersion depend importantly on the measures employed when we compare the prices posted by different internet retailers we find substantial dispersion internet retailer prices differ by an average of 33 for books and 25 for cds however when we weight these prices by proxies for market share we find dispersion is lower in internet channels than in conventional channels reflecting the dominance of certain heavily branded retailers we conclude that while there is lower friction in many dimensions of internet competition branding awareness and trust remain important sources of heterogeneity among internet retailers

competition under consumer loss aversion we address the effect of expectation based consumer loss aversion on firm strategy in imperfect competition consumers are fully informed about match value and price at the moment of purchase however some consumers are initially uninformed about their tastes and form a reference point consisting of an expected match value and price distribution whereas others are perfectly informed all the time we show that if firms have symmetric costs a larger share of informed consumers leads to a more competitive outcome the reverse holds if cost asymmetry in duopoly is sufficiently large

rockets and feathers understanding asymmetric pricing prices rise like rockets but fall like feathers this stylized fact of most markets is con rmed by many empirical studies in this paper i develop a model with competitive rms and rational partially informed consumers where such asymmetric response to costs by rms emerges naturally in contrast to public opinion and past work collusion is not necessary to explain such result using a rich dataset of retail gasoline prices i nd the observed price dispersion pattern to be consistent with the model s prediction

behavioral contract theory abstract this review provides a critical survey of psychology and economics behavioral economics research in contract theory first i introduce the theories of individual decision making most

optimal growth with many consumers abstract a method is described for constructing all pareto optimal allocations for a dynamic economy with many heterogeneous consumers under certainty in which both the technology and consumer preferences are recursive but preferences need not be additively separable over time optimal perfect foresight competitive equilibrium allocations are obtained through the study of a dynamic program for an economy with one consumption good sufficient conditions are given for the existence of a unique interior stationary distribution of consumption and wealth for a two person exchange economy sufficient conditions are given for the global asymptotic stability of the unique interior stationary point

price search and periodic price discounts this paper empirically investigates the interplay between buyer search behavior and firm pricing strategy in a commodity market where many firms compete in price to sell homogeneous products we use the heterogeneity in buyer search cost to rationalize why a firm offers periodic price discounts and enjoys a high profit in such a market an estimation method is proposed to recover the nonparametric distribution of buyer search cost from the price and transaction volume data with both data we show that the search cost distribution can be estimated nonparametrically in a sequential search model and estimation results from a nonsequential search model are robust to the assumption on the maximum number of searches we also show that the commonly observed high low pricing strategy can be an optimal strategy for firms when buyers search for price information sequentially as an empirical application we use the proposed method to estimate the two search models using data on a commodity product sold by a firm

reputation and prices on the e market evidence from a major french platform we use an exhaustive data set from one of france s largest e commerce platforms priceminister com to estimate a statistical causal effect of a seller s reputation rating and size on transaction prices we go beyond the results currently available by tackling the issue of seller unobserved heterogeneity and the dynamics of reputation in price equations we can also produce results for a large range of product categories books cds video games or dvds product conditions used or new and seller types individual or professional sellers our results show large scale empirical evidence of a significant positive and strong effect of seller reputation on prices

information gatekeepers on the internet and the competitiveness of homogeneous product markets we examine the equilibrium interaction between a market for price information controlled by a gatekeeper and the homogenous product market it serves the gatekeeper charges fees to firms that advertise prices on its internet site and to consumers who access the list of advertised prices gatekeeper profits are maximized in an equilibrium where a the product market exhibits price dispersion b access fees are sufficiently low that all consumers subscribe c advertising fees exceed socially optimal levels thus inducing partial firm participation and d advertised prices are below unadvertised prices introducing the market for information has ambiguous social welfare effects

prices and price dispersion on the web evidence from the online book industry using data collected between august 1999 and january 2000 covering 399 books we examine pricing by thirty two online united states based bookstores at the aggregate level we find that both advertising and competitive structure had the predicted effects more competition led to lower prices and to lower price dispersion holding competitive structure constant more widely advertised items also had lower prices at the firm level we observe considerable heterogeneity in behavior firms had differentiated or attempted to differentiate on dimensions such as brand price and selection

wage and price controls in the equilibrium sequential search model abstract in this paper we study the effects of wage and price controls on employment output and welfare in a simplified version of the benabou j econom theory 60 1993 140 equilibrium sequential search model with bilateral heterogeneity we show that a price ceiling increases output but the change in welfare depends on three effects the reduction in aggregate search costs the increase in surplus due to increased output and the transfer of production to the least efficient firm the model is formally identical to a standard equilibrium search model of the labor market so analogous results hold for the minimum wage

price directed consumer search abstract we extend stahl s 1989 model to a setting with differentiated products to study the effects of price directed consumer search consumers engage in costly search to find out whether products meet their needs consumer search is directed by prices when they are observable before search in contrast to the case in which prices are discovered only after search where search is naturally random the equilibrium under price directed search differs substantially from that under random search despite certain similarities we show that as search costs decrease sales become more likely and firms earn higher expected profits under price directed search whereas the opposite holds under random search moreover compared with random search under price directed search firms expected profits are always lower but consumer surplus and total welfare are higher provided that the search cost is sufficiently small

search theoretic models of the labor market a survey we survey the literature on search theoretic models of the labor market we show how this approach addresses many issues including the following why do workers sometimes choose to remain unemployed what determines the lengths of employment and unemployment spells how can there simultaneously exist unemployed workers and unfilled vacancies what determines aggregate unemployment and vacancies how can homogeneous workers earn different wages what are the tradeoffs firms face from different wages how do wages and turnover interact what determines efficient turnover we discuss various modeling choices concerning wage determination and the meeting process including recent models of directed search

internet advertising and the generalized second price auction selling billions of dollars worth of keywords we investigate the generalized second price gsp auction a new mechanism used by search engines to sell online advertising although gsp looks similar to the vickrey clarke groves vcg mechanism its properties are very different unlike the vcg mechanism gsp generally does not have an equilibrium in dominant strategies and truth telling is not an equilibrium of gsp to analyze the properties of gsp we describe the generalized english auction that corresponds to gsp and show that it has a unique equilibrium this is an ex post equilibrium with the same payoffs to all players as the dominant strategy equilibrium of vcg

prominence complexity and pricing this paper analyzes prominence in a homogeneous product market where two firms simultaneously choose both prices and price complexity levels complexity limits competing offers comparability and results in consumer confusion confused consumers are more likely to buy from the prominent firm in equilibrium there is dispersion in both prices and price complexity the nature of equilibrium depends on prominence compared to its rival the prominent firm makes higher profit associates a smaller price range with lowest complexity puts lower probability on lowest complexity and sets a higher average price however higher prominence may benefit consumers and conditional on choosing lowest complexity the prominent firm s average price is lower which is consistent with confused consumers bias

a model of biased intermediation this paper studies situations in which some consumers rely on a potentially biased intermediary to choose among downstream firms we introduce the notion that firms and consumers payoffs can be congruent or conflicting and show that this has important implications for the effects of bias under congruence the firm towards which the intermediary is biased invests more than its rival and consumers can be better off than under no bias under conflict bias hurts consumers and the favored firm charges higher prices we study various oft proposed policies for dealing with a biased intermediary and show that the efficacy of each intervention depends strongly on whether the environment exhibits congruence or conflict we discuss how the model relates to recent issues in online markets

multiproduct search and the joint search effect abstract this paper presents a sequential search model where consumers look for several products from multiproduct firms multiproduct search can significantly influence firms pricing decisions for example it can make market prices decrease with search costs possible applications of the model are also discussed jel d11 d43 d83

output effects of government purchases the theoretical analysis focuses on the distinction between temporary and permanent movements in government purchases under plausible conditions the temporary case involves an output response that is positive less than one to one with the change in government purchases and larger than that generated by an equal sized but permanent shift in purchase the equilibrium real rate of return rise in the temporary case but changes little in the permanent one defense purchases are divided empirically into permanent and temporary components by considering the role of temporary wars no temporary shifts in nondefense purchases were isolated empirical results verify an expansionary output effect for temporary purchases that exceeds that of permanent purchases the results for some other expectational hypotheses are found to be generally supportive of the theory

advertising for attention in a consumer search model we model the idea that when consumers search for products they first visit the firm whose advertising is most salient the gains a firm derives from being visited early increase in search costs so equilibrium advertising increases as search costs rise as a result higher search costs may decrease both consumer welfare and firm profits we extend the basic model by allowing for firm heterogeneity in advertising costs firms that raise attention more easily advertise more but also charge lower prices and obtain higher profits as advertising cost asymmetries increase consumer surplus falls and aggregate profits rise

measuring the effects of search costs on equilibrium prices and profits abstract this paper assesses the effects of search costs on equilibrium prices and profits using an estimated model of demand and costs in a laundry detergent market i find that some firms profits initially rise and then fall with search costs overall the magnitude and direction of the search costs effects on prices and profits are heterogeneous this is because search costs create conflicting incentives for a firm to reduce prices to attract the attention of searching consumers yet also raise prices to harvest profit from consumers who are unaware of competing products these effects can vary with the relationship between the firms actual prices and the consumers pre search beliefs about prices

consumer search with observational learning this article studies observational learning in a consumer search environment consumers observe the purchasing decision of a predecessor with similar preferences consumers rationally emulate by initiating their search at the firm from which their predecessor purchased free riding on search effort and reacting less to price changes prices are nonmonotone in search costs and may be as low as marginal costs we discuss several extensions and show that the effect of emulation on prices is stronger when i the number of firms increases ii consumers first visits are more elastic with respect to market shares and iii prices are adjusted more frequently

temporary and permanent government spending in an open economy some evidence for the united kingdom abstract this paper investigates the effects of government spending changes on a small open economy in an intertemporal substitution framework if agents internalize the government s budget constraint temporary and permanent spending have different implications for wealth and consequently different effects on output and the balance of trade estimation of these effects isolates the different channels through which government spending can influence economic activity main findings for the united kingdom are that government spending i crowds out private spending ii is directly productive and iii when rising permanently leads to a negative wealth effect which induces a large rise in work effort

a position paradox in sponsored search auctions we study the bidding strategies of vertically differentiated firms that bid for sponsored search advertisement positions for a keyword at a search engine we explicitly model how consumers navigate and click on sponsored links based on their knowledge and beliefs about firm qualities our model yields several interesting insights a main counterintuitive result we focus on is the position paradox the paradox is that a superior firm may bid lower than an inferior firm and obtain a position below it yet it still obtains more clicks than the inferior firm under a pay per impression mechanism the inferior firm wants to be at the top where more consumers click on its link whereas the superior firm is better off by placing its link at a lower position because it pays a smaller advertising fee but some consumers will still reach it in search of the higher quality firm under a pay per click mechanism the inferior firm has an even stronger incentive to be at the top because now it only has to pay for the consumers who do not know the firms reputations and therefore can bid more aggressively interestingly as the quality premium for the superior firm increases and or if more consumers know the identity of the superior firm the incentive for the inferior firm to be at the top may increase contrary to conventional belief we find that the search engine may have the incentive to overweight the inferior firm s bid and strategically create the position paradox to increase overall clicks by consumers to validate our model we analyze a data set from a popular korean search engine firm and find that i a large proportion of auction outcomes in the data show the position paradox and ii sharp predictions from our model are validated in the data

how auctions work for wine and art interview auctioneers and even to buy a little wine in the meantime i have also had the opportunity with john abowd 1988 to observe and collect data on the auction sale of impressionist and contemporary paintings this paper reports on some of the empirical regularities that i and others have observed in the actual operation of the auction markets for these items in view of the rich and diverse array of theoretical literature on auctions it seems high time economists began to spell out precisely what facts it is meant to explain 2

asymmetric price effects of competition when price dispersion is prevalent a relevant question is what happens to the whole distribution of equilibrium prices when the number of firms changes using data from the gasoline market in the netherlands we find first that markets with n competitors have price distributions that first order stochastically dominate the price distributions in markets with n 1 firms second the effect of competition is stronger for the medium to upper percentiles of the price distribution finally consumer gains from competition are larger for relatively well informed consumers to account for these empirical patterns we extend varian s 1980 model by allowing for richer heterogeneity in consumer price information

stock markets adjustment costs and the international transmission of shocks this paper studies the role of stock markets and adjustment costs in the international transmission of supply shocks it uses an analytically tractable two country one good model where intertemporal optimizing behaviour of infinitely lived agents endogenously determines the rate of capital accumulation and the current account it is shown that the presence of adjustment costs and stock markets provide new insights concerning the channels through which supply shocks are internationally transmitted

oligopolistic pricing with heterogeneous consumer search abstract a finite number of identical stores sell a homogeneous good to consumers with heterogeneous search costs who search sequentially with perfect recall and without replacement consumers search rules are optimal with respect to the stores pricing strategies and consumers must visit a store to obtain information about its actual price a symmetric nash equilibrium sne always exists the model exhibits a variety of equilibrium behaviors between monopoly pricing and marginal cost pricing the competitiveness of a market depends crucially on the shape of the search cost distribution moreso than on the number of competing firms

integration and search engine bias competition authorities all over the world worry that integration between search engines mainly google and publishers could lead to abuses of dominant position in particular one concern is that of own content bias meaning that google would bias its rankings in favor of the publishers it owns or has an interest in to the detriment of competitors and users in order to investigate this issue we develop a theoretical framework in which the search engine i allocates users across publishers and ii competes with publishers to attract advertisers we show that the search engine is biased against publishers that display many ads even without integration although integration may lead to own content bias it can also reduce bias by increasing the value of a marginal consumer to the search engine integration also has a positive eect on users by reducing the nuisance costs due to excessive advertising its net eect is therefore ambiguous in general and we provide sucient conditions for it to be desirable or not

equilibrium price distributions equilibrium price distributions for a homogeneous product consistent with individual incentives are investigated they arise in informationally imperfect markets in which the only primitive datum is the distribution of search costs it is shown that single multi and continuous price distributions are all viable long run phenomena depending on the nature of search costs a method for computing equilibrium price distributions is also provided jevons law of one price has long been an accepted dictum in economic theory in a classroom presentation it still serves sometimes implicitly as a major premise in many micro models of market interaction much of the descriptive theory as well as welfare analysis hinges on this assumption yet one s day to day experience reveals that price differentials are a viable phenomenon and that looking for lower prices may very well be a rewarding activity the prospects of eventually hitting a bargain and the resulting price reduction would more than compensate for the cost incurred during the search process moreover the existence of price dispersions appear to be an empirically stable phenomenon snapshots of markets for relatively homogeneous products reveal substantial and recurring price differentials stigler 1961 and pratt wise and zeckhauser 1979 for example report some evidence supporting this claim an important article by stigler 1961 focused economists attention on the crucial role played by the informational structure of markets it gave rise to the study of the

consumer search and double marginalization the well known double marginalization problem understates the inefficiencies arising from vertical relations in consumer search markets where consumers are uninformed about the wholesale prices charged by manufacturers to retailers consumer search provides a monopoly manufacturer with an additional incentive to increase its price worsening the double marginalization problem and lowering the manufacturer s profits nevertheless manufacturers in more competitive wholesale markets may not have an incentive to reveal their prices to consumers we show that retail prices decrease in search cost and so both industry profits and consumer surplus increase in search cost jel d11 d42 d83 l12 l25 l60 l81 in markets where consumers do not know retail prices and need to invest time and resources to get to know them they often also do not know retailers marginal costs even though consumers are not directly interested in retailers costs these costs are indicative for whether consumers should buy at the current shop or continue to search for the next offer this is particularly true when there is a significant common component in retailers costs for the same observed price at a particular retailer if the common cost is low the retailer s margin is high and it is more beneficial to check the price at the next retailer as he is likely to maintain a lower margin and hence to charge a lower price this paper studies consumer search in markets where retailers have a common marginal cost that is set by a manufacturer as a reference point we consider the unrealistic case where consumers are fully informed about the wholesale price that retailers must pay the manufacturer and show how the familiar double marginalization problem arises we then consider the more realistic setting where consumers

art as an investment the market for modern prints repeat sales of modern prints at auction are used to estimate a semiannual index of prices for the period 1977 92 as in other studies of art as an investment prints do not compare favorably to traditional financial assets there is substantial noise in auction prices but little or no support for the proposition that some artists command higher prices in certain countries or that masterpieces outperform the market one puzzle is the continuing tendency for prices realized at certain auction houses to exceed those realized at others notably at sotheby s relative to christie s in new york copyright 1993 by american economic association

oligopolistic pricing with sequential consumer search n identical stores compete by choosing prices for a homogeneous good with constant marginal costs consumers search sequentially with perfect recall for the lowest price one class of consumers called shoppers have zero search costs while all other consumers have a positive search cost c there is a unique symmetric nash equilibrium price distribution with the property that it changes smoothly from marginal cost pricing when all consumers are shoppers and or c 0 and monopoly pricing when no consumers are shoppers remarkably as the number of stores increases the nash equilibrium becomes more monopolistic copyright 1989 by american economic association

a model of search with price discrimination abstract we introduce observable heterogeneity across buyers into a model of simultaneous search buyers differences are informative about their willingness to search giving rise to price discrimination even if they all have the same willingness to pay we analyze and compare equilibrium outcomes when price discrimination is allowed and when it is not we find that the price comparison across consumers as well as the effects of banning price discrimination critically depend on the elasticity of the search cost distribution interestingly for normally distributed search costs there is an inverted u shape relationship between prices and buyers size similarly a ban on price discrimination hurts small and large buyers to the benefit of the medium size ones

nonsequential search equilibrium with search cost heterogeneity we generalize the model of burdett and judd 1983 to the case where an arbitrary finite number of firms sells a homogeneous good to buyers who have heterogeneous search costs we show that a price dispersed symmetric nash equilibrium always exists numerical results show that the behavior of prices and consumer surplus with respect to the number of firms hinges upon the nature of search cost dispersion when search costs are relatively concentrated entry of firms leads to lower average prices and greater consumer surplus however for relatively dispersed search costs the mean price goes up and consumer surplus may decrease with the number of firms

temporary and permanent government spending in a small open economy abstract this paper studies a dynamic optimizing small open economy model that emphasizes the supply side responses of labor and capital to changes in fiscal policy the model used generates results that are consistent with a number of empirical regularities in small open economies furthermore temporary fiscal shocks are shown to have permanent positive effects on output and negative effects on consumption and welfare the strength of these effects are shown to depend on intertemporal elasticities of substitution and the persistence of policies

in google we trust we examine the incentives of a monopolistic search engine funded by advertising to provide reliable search results we distinguish two types of search results sponsored and organic not paid for organic results are most important in searches for online content while sponsored results are more important in product searches by modeling the underlying markets for online content and offline products we can identify the sources of distortions for each type of result and their interaction this explicit treatment proves crucial for understanding not only spillovers across markets but also fundamental policy issues such as the welfare effects of integration in particular integration of the engine with a small fraction of content providers is welfare enhancing when incentives to distort are stronger for sponsored than organic search but welfare reducing in the opposite case

coordination economies advertising and search behavior in retail markets we introduce a model of the retail firm in which consumers and active firms benefit collectively from coordination of sales at fewer firms using this model we show that ostensibly uninformative advertising plays a key role in bringing about coordination economies by directing consumer search toward firms that offer the best deals optimal consumer search takes the form of a simple rule of thumb that uses observed advertising information to guide search both industry concentration and social surplus are higher in the presence of advertising relative to a no advertising benchmark jel d83 l15 many observed advertisements seem to be at odds with rational behavior in a variety of ads mostly on tv and radio multiproduct sellers provide little hard information choosing instead to impart only vague slogans that are suggestive of good deals examples are plentiful a hardware store

prices and heterogeneous search costs we study price formation in a model of consumer search for differentiated products in which consumers have heterogeneous search costs we provide conditions under which a pure strategy symmetric nash equilibrium exists and is unique search costs affect two margins the intensive search margin or search intensity and the extensive search margin or the decision to search rather than to not search at all these two margins affect the elasticity of demand in opposite directions and whether lower search costs result in higher or lower prices depends on the properties of the search cost density

search market equilibrium bilateral heterogeneity and repeat purchases abstract we develop a general model of search market equilibrium with heterogeneous buyers and sellers this framework unifies previous models with one sided heterogeneity and clarifies many of their special properties it easily accounts for price dispersion active search and the matching of buyer and seller types it also extends to repeat purchases once we embed it into a dynamic game with incomplete information we formalize the inferences and strategies underlying equilibria where firms charge constant prices and customers patronize them loyally we establish a general correspondence between such equilibria and single purchase markets journal of economic literature classification numbers d83 l13

auctions and the price of art the value of most important works of art is established by public auction either directly by an actual sale or indirectly by reference to other sales how the auction system works is thus a critical determinant of how the public s preferences are translated into the evaluation of artistic work the auction system is central in the determination of the incentives for artistic work and the efficiency of the auction system is a key determinant of the cost of creating and distributing works of art this paper contains a review of the burgeoning new research of the last decade that has been designed to shed light on how the art auction system actually works what it indicates about price formation and how well it performs we begin our discussion in section 2 with a short description of the mechanics of the auction system and then organize the remainder of our discussion around two major topics the first topic concerns how auction prices can be used to determine and compare overall price movements within the art market and other markets and the second topic concerns how the auction mechanism influences prices we

a model of directed consumer search abstract we present a framework to study directed consumer search firms sell products with two attributes one is readily observable the other is observed 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 consumers observe prices before searching prices decrease in search costs consumer surplus initially increases in search costs but may ultimately decrease

online shopping and platform design with ex ante registration requirements we study platform design in online markets in which buying involves a nonmonetary cost for consumers caused by privacy and security concerns firms decide whether to require registration at their website before consumers learn relevant product information we derive conditions under which a monopoly seller benefits from ex ante registration requirements and demonstrate that the profitability of registration requirements is increased when taking into account the prospect of future purchases or an informational value of consumer registration to the firm moreover we consider the effectiveness of discounts store credit as a means to influence the consumers registration decision finally we confirm the profitability of ex ante registration requirements in the presence of price competition the online appendix is available at https doi org 10 1287 mnsc 2016 2595 this paper was accepted by j miguel villas boas marketing

paying for prominence we investigate three ways in which firms can become prominent and thereby influence the order in which consumers consider options first firms can affect an intermediary s sales efforts by means of commission payments when firms pay commission to a salesman the salesman promotes the product with the highest commission and steers ignorant consumers towards the more expensive product second sellers can advertise prices on a price comparison website so that consumers investigate the suitability of products in order of increasing price in such a market equilibrium prices are lower when search costs are higher since a firm s benefit from being investigated first increases with search costs finally consumers might first consider their existing supplier when they purchase a new product which suggests a relatively benign rationale for the prevalence of cross selling in markets such as retail banking

targeted search and the long tail effect we develop a search model to explain the long tail effect search targetability or the quality of search is explicitly modelled consumers are searching for the right products within the right categories as search costs decrease or search targetability increases additional variety of goods catering to long tail consumers will be provided and the concentration of sales across different categories of goods decreases the effects of a decrease in search costs or an increase in search targetability on consumer utility prices and profits depend on whether the type coverage increases decreases in search costs and increases in search targetability have different qualitative effects

raising search costs to deter window shopping can increase profits and welfare consumers tend to browse products they are interested in and firms often invest resources in selling to them a consequence i show is that it is optimal for a firm to increase the cost of browsing even though this drives away potential customers because doing so allows it to target sales efforts at those consumers most likely to buy despite representing pure waste this can increase welfare by facilitating efficient allocation of sales or marketing resources for a similar reason consumers often benefit from search costs in aggregate and prefer them to other means of screening such as price increases

beliefs and consumer search in a vertical industry this paper studies vertical relations in a search market as the wholesale arrangement between a manufacturer and its retailers is typically unobserved by consumers their beliefs about who is to be blamed for a price deviation play a crucial role in determining wholesale and retail prices the common assumption in the consumer search literature is that consumers exclusively blame an individual retailer for a price deviation we show that in the vertical relations context predictions based on this assumption are not robust in the sense that if consumers assign just a small probability to the event that the upstream manufacturer is responsible for the deviation equilibrium predictions are qualitatively di erent for the robust beliefs the vertical model can explain a variety of observations such as retail price rigidity or alternatively low cost pass through non monotonicity of retail prices in search costs and seemingly collusive retail behavior the model can be used to study a monopoly online platform that sells access to nal consumers

pricing product diversity and search costs a bertrand chamberlin diamond model we study price competition in the presence of search costs and product differentiation the limit cases of the model are the bertrand paradox the diamond paradox and chamberlinian monopolistic competition market prices rise with search costs and decrease with the number of firms prices may initially fall with the degree of product differentiation because more diversity leads to more search and more competition equilibrium diversity rises with search costs while the optimum level falls so entry is excessive the market failure is most pronounced for low preference for variety and high search costs

truly costly sequential search and oligopolistic pricing we modify the paper of stahl 1989 stahl d o 1989 oligopolistic pricing with sequential consumer search american economic review 79 700 12 by relaxing the assumption that consumers obtain the first price quotation for free when all price quotations are costly to obtain the unique symmetric equilibrium need not involve full consumer participation the region of parameters for which non shoppers do not fully participate in the market becomes larger as the number of shoppers decreases and or the number of firms increases the comparative statics properties of this new type of equilibrium are interesting in particular expected price increases as search cost decreases and is constant in the number of shoppers and in the number of firms welfare falls as firms enter the market we show that monopoly pricing never obtains with truly costly search d 2005 elsevier b v all rights reserved

optimal auction design in two sided markets a key feature of online markets for advertising e g sponsored links is that clicking rates depend on the searchers expectations that the platform selects relevant advertisers this article studies auction design by a platform that maximizes profits in the long run where clicking rates are mechanism dependent in line with the practice of the major search engines the revenue maximizing mechanism is a scoring auction that combines the willingness to pay and the relevance to searchers of advertisers by trading off rent extraction and clicking volume this mechanism works as a cross subsidization device between searchers and advertisers

consideration sets and competitive marketing we present a model of competitive marketing based on the notion that consumers are boundedly rational and that firms use marketing tactics in an attempt to influence consumers decision process the standard model of consumer behaviour assumes that the consumer applies well defined preferences to a perfectly perceived set of available alternatives we retain the assumption that consumers have stable preferences but relax the assumption that they have a perfect perception of what is relevant for their consumption problem thus allowing firms to manipulate that perception our aim is to explore the market implications of this departure from the standard model especially for the way firms deploy marketing strategies in competitive environments the cornerstone of our model is the observation that in the modern marketplace consumers face an overwhelmingly large variety of products and therefore often use screening criteria deliberate as well as unconscious in order to reduce the number of relevant alternatives as a result consumers apply their preferences not to the set of objectively feasible alternatives but to a potentially smaller set which they construct at an earlier stage of the decision process borrowing a term from the marketing literature we refer to this set as the consideration set the basic idea underlying this term is that consumers may be unaware of some of the feasible products and even when they become aware of a new product they still need to be persuaded to consider it as a potential substitute to their currently consumed product

habit formation adjustment costs and international transmission of fiscal policy abstract the paper studies the effects of fiscal policy in an integrated world economy the setup is one with habit forming endogenous rates of time preference and adjustment costs in investment most of the predictions of the model are in line with the recent empirical literature on fiscal policy for instance in response to a balanced fiscal expansion we obtain positive long run output multipliers long run increases in employment short and medium run increases in wages and decreases in investment our results suggest that short run government spending multipliers are smaller than tax multipliers most importantly we show that the model can generate positive short and medium run consumption responses to a positive fiscal shock this is relevant as negative consumption responses are considered to be one of the main challenges facing neo classical models of fiscal policy

search design and market structure the internet has made consumer search easier with consequences for prices industry structure and the kinds of products oered we explore these conse quences in a rich but tractable model that allows for strategic design choices a polarized market structure results where some rms choose designs aimed at broad based audiences while others target narrow niches such an industry structure can arise even when all rms and consumers are ex ante identical we analyze the eect of reduced search costs and nd results consistent with the reported prevalence of niche goods and the long tail and superstar phe nomena in particular the model suggests that long tail eects arise when there is a wide range of potential designs relative to vertical heterogeneity among rms

fiscal policy in general equilibrium this paper studies four classic fiscal policy experiments within a quantitatively restricted neoclassical model the authors main findings are as follows 1 permanent changes in government purchases can lead to short run and long run output multipliers that exceed one 2 permanent changes in government purchases induce larger effects than temporary changes 3 the financing decision is quantitatively more important than the resource cost of changes in government purchases and 4 public investment has dramatic effects on private output and investment these findings stem from important dynamic interactions of capital and labor absent in earlier equilibrium analyses of fiscal policy copyright 1993 by american economic association

prominence and consumer search this article examines the implications of prominence in search markets we model prominence by supposing that the prominent firm will be sampled first by all consumers if there are no systematic quality differences among firms we find that the prominent firm will charge a lower price than its less prominent rivals making a firm prominent will typically lead to higher industry profit but lower consumer surplus and welfare the model is extended by introducing heterogeneous product qualities in which case the firm with the highest quality product has the greatest incentive to become prominent and making it prominent will boost industry profit consumer surplus and welfare

behavioral economics and public policy a pragmatic perspective the debate about behavioral economics the incorporation of insights from psychology into economics is often framed as a question about the foundational assumptions of economic models this paper presents a more pragmatic perspective on behavioral economics that focuses on its value for improving empirical predictions and policy decisions i discuss three ways in which behavioral economics can contribute to public policy by oering new policy tools improving predictions about the eects

product differentiation search costs and competition in the mutual fund industry a case study of s p 500 index funds we investigate the role that non portfolio fund differentiation and information search frictions play in creating two salient features of the mutual fund industry the large number of funds and the sizeable dispersion in fund fees in a case study we find that despite the financial homogeneity of s p 500 index funds this sector exhibits the fund proliferation and fee dispersion observed in the broader industry we show how extra portfolio mechanisms explain these features these mechanisms also suggest an explanation for the puzzling late 1990s shift in sector assets to more expensive and often newly entered funds an influx of highinformation cost novice investors

price dispersion and differentiation in online travel an empirical investigation previous research has examined whether price dispersion exists in theoretically highly efficient internet markets however much of the previous work has been focused on industries with low cost and undifferentiated products in this paper we examine the presence of price dispersion and product differentiation using data on the airline ticket offerings of online travel agents otas we find that different otas offer tickets with substantially different prices and characteristics when given the same customer request some of this variation appears to be due to product differentiation different otas specialize by systematically offering different trade offs between ticket price and ticket quality minimizing the number of connections matching requested departure and return time however even after accounting for differences in ticket quality ticket prices vary by as much as 18 across otas in addition otas return tickets that are strictly inferior to the ticket offered by another ota for the same request between 2 2 and 28 of the time overall this suggests the presence of both price dispersion and product differentiation in the online travel market

monotone comparative statics under uncertainty this paper analyzes monotone comparative statics predictions in several classes of stochastic optimization problems the main results characterize necessary and sufficient conditions for comparative statics predictions to hold based on properties of primitive functions that is utility functions and probability distributions the results apply when the primitives satisfy one of the following two properties i a single crossing property which arises in applications such as portfolio investment problems and auctions or ii log supermodularity which arises in the analysis of demand functions affiliated random variables stochastic orders and orders over risk aversion

auctions market efficiency and the trade in second hand and antique silver using a new large unique database relating to silver goods sold at two major uk auction houses we show that the scrap value of silver plays a significant role in determining the realised prices of items sold at silver auctions however although scrap silver can be sold for cash at guaranteed prices almost immediately arbitrage opportunities are extremely limited just over 6 of silver goods sell below scrap value but once the buyer s premium is allowed for the opportunity for profit is tiny

aggregation and imperfect competition on the existence of equilibrium we present a new approach to the theory of imperfect competition and apply it to study price competition among differentiated products the central result provides general conditions under which there exists a pure strategy price equilibrium for any number of firms producing any set of products this includes products with multi dimen sional attributes in addition to the proof of existence we provide conditions for uniqueness our analysis covers location models the characteristics approach and probabilistic choice together in a unified framework to prove existence we employ aggregation theorems due to prekopa 1971 and borell 1975 our companion paper caplin and nalebuff 1991 introduces these theorems and develops the application to super majority voting rules we present a new approach to the theory of imperfect competition and apply it to study price competition among differentiated products the central result is that there exists a pure strategy price equilibrium for any number of firms producing any set of products in addition to the proof of existence we provide conditions for uniqueness our model both unites diverse strands of the earlier literature and opens up uncharted areas for future analysis in particular we expand the traditional one dimensional framework to allow for multi dimen sional product differentiation our approach involves twin restrictions on consumer preferences one on individuals preferences the other on the distribution of preferences across society these are generalizations of the restrictions supporting 64 majority rule presented in caplin and nalebuff 1988 to prove existence we apply a new technique of aggregation this technique is valuable in a variety of other problems in the companion paper we use the aggregation result to generalize our earlier work on 64 majority rule and to characterize the relationship between the distribution of human capital and the distribution of income caplin and nalebuff 1991 there are additional applications in statistics and in search theory we begin with a brief review of the early literature on imperfect competition describing in more detail the existence problem and previous solutions section 3 presents our twin assumptions and shows that they cover many standard cases in section 4 we introduce the aggregation theorem and use it in the analysis of demand functions the proof of existence of equilibrium is in section

search prominence and return costs abstract it is widely held that sellers prefer to appear early in a consumer s search but evidence suggests this need not be the case we develop a model which incorporates costly search and costly return and demonstrate that appearing later may be better when return is free prominence is desirable by standard logic however costly return induces a tradeoff it benefits an earlier seller by reducing the initial search but also benefits a later seller by preventing return conditional on search we show that for small search costs later is better whenever high outcomes have a low likelihood or whenever two independent match value draws are likely to be near one another later can still be better if sellers compete in prices prior to search finally with many sellers the optimal position may be first last or in between but earlier positions are favored as the number of sellers grows

habit formation and fiscal transmission in open economies in this paper we analyze the ability of an open economy version of the neoclassical model to account for the time series evidence on fiscal policy transmission revisiting the evidence we find that i government spending raises output while inducing a simultaneous decline of investment and the current account and ii the responses of output and investment are more muted in more open economies while current account deficits tend to be larger turning to the model we explore the role of habit formation for fiscal policy transmission specifically we show that the model can account for the evidence if consumption behavior is characterized by habit formation and the terms of trade adjust endogenously

strategic complementarities and search market equilibrium abstract in this paper we apply supermodular game theory to the equilibrium search literature with sequential search we identify necessary and sufficient conditions for the pricing game to exhibit strategic complementarities and prove existence of equilibrium we then show that price dispersion is inherently incompatible with strategic complementarities in the sense that the diamond paradox obtains when firms are identical and is robust within the class of search cost densities that are small near zero and support strategic complementarities we also show that a major criticism of the literature that agents act as if they know the distribution of prices can be justified in the sense of convergent best response dynamics

can prominence matter even in an almost frictionless market 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

true monopolistic competition as a result of imperfect information the paper restates hart s 1985a 1985b definition of large group monopolistic competition distinguishes it from oligopolistic competition and raises the question of whether there are reasonable circumstances that give rise to true monopolistic competition as defined the purpose is to show that consumers imperfect information may create conditions that will turn an otherwise oligopolistic market into a truly monopolistically competitive one