IDEAS home Printed from https://ideas.repec.org/a/eee/indorg/v85y2022ics016771872200039x.html
   My bibliography  Save this article

Multiproduct search obfuscation

Author

Listed:
  • Hämäläinen, Saara

Abstract

We introduce a new price competition model of search for a single product among multiproduct firms. Search order is optimal within and across firms. Consumers have limited time and require a random time to sample a product. Different search outcomes lead to price dispersion. We describe a symmetric mixed equilibrium where multiproduct firms provide discounted prices on some products and expensive prices on others. Compared to single-product oligopolies, this strategy alleviates competition by (i) engaging consumers in searching more within (less across) firms and (ii) enabling more refined price discrimination.

Suggested Citation

  • Hämäläinen, Saara, 2022. "Multiproduct search obfuscation," International Journal of Industrial Organization, Elsevier, vol. 85(C).
    • Handle: RePEc:eee:indorg:v:85:y:2022:i:c:s016771872200039x
    DOI: 10.1016/j.ijindorg.2022.102863
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S016771872200039X
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.ijindorg.2022.102863?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Bart J. Bronnenberg & Jean-Pierre Dubé & Matthew Gentzkow & Jesse M. Shapiro, 2015. "Do Pharmacists Buy Bayer? Informed Shoppers and the Brand Premium," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 130(4), pages 1669-1726.
    2. Steven Salop & Joseph Stiglitz, 1977. "Bargains and Ripoffs: A Model of Monopolistically Competitive Price Dispersion," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 44(3), pages 493-510.
    3. Glenn Ellison, 2005. "A Model of Add-On Pricing," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 120(2), pages 585-637.
    4. Varian, Hal R, 1980. "A Model of Sales," American Economic Review, American Economic Association, vol. 70(4), pages 651-659, September.
    5. Greg Kaplan & Guido Menzio & Leena Rudanko & Nicholas Trachter, 2019. "Relative Price Dispersion: Evidence and Theory," American Economic Journal: Microeconomics, American Economic Association, vol. 11(3), pages 68-124, August.
    6. Ioana Chioveanu & Jidong Zhou, 2013. "Price Competition with Consumer Confusion," Management Science, INFORMS, vol. 59(11), pages 2450-2469, November.
    7. Michael R. Baye & John Morgan & Patrick Scholten, 2006. "Persistent Price Dispersion in Online Markets," Chapters, in: Dennis W. Jansen (ed.), The New Economy and Beyond, chapter 6, Edward Elgar Publishing.
    8. Shelegia, Sandro, 2012. "Multiproduct pricing in oligopoly," International Journal of Industrial Organization, Elsevier, vol. 30(2), pages 231-242.
    9. Dominic Coey & Bradley J. Larsen & Brennan C. Platt, 2020. "Discounts and Deadlines in Consumer Search," American Economic Review, American Economic Association, vol. 110(12), pages 3748-3785, December.
    10. Asher Wolinsky, 1986. "True Monopolistic Competition as a Result of Imperfect Information," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 101(3), pages 493-511.
    11. Michael Grubb, 2015. "Failing to Choose the Best Price: Theory, Evidence, and Policy," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 47(3), pages 303-340, November.
    12. Ş. Akın & Brennan Platt, 2014. "A theory of search with deadlines and uncertain recall," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 55(1), pages 101-133, January.
    13. Xavier Gabaix & David Laibson, 2018. "Shrouded attributes, consumer myopia and information suppression in competitive markets," Chapters, in: Victor J. Tremblay & Elizabeth Schroeder & Carol Horton Tremblay (ed.), Handbook of Behavioral Industrial Organization, chapter 3, pages 40-74, Edward Elgar Publishing.
    14. Babur De Los Santos & Ali Hortacsu & Matthijs R. Wildenbeest, 2012. "Testing Models of Consumer Search Using Data on Web Browsing and Purchasing Behavior," American Economic Review, American Economic Association, vol. 102(6), pages 2955-2980, October.
    15. Glenn Ellison & Sara Fisher Ellison, 2009. "Search, Obfuscation, and Price Elasticities on the Internet," Econometrica, Econometric Society, vol. 77(2), pages 427-452, March.
    16. Burdett, Kenneth & Judd, Kenneth L, 1983. "Equilibrium Price Dispersion," Econometrica, Econometric Society, vol. 51(4), pages 955-969, July.
    17. Stephan Seiler, 2013. "The impact of search costs on consumer behavior: A dynamic approach," Quantitative Marketing and Economics (QME), Springer, vol. 11(2), pages 155-203, June.
    18. Michele Piccione & Ran Spiegler, 2012. "Price Competition Under Limited Comparability," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 127(1), pages 97-135.
    19. José Luis Moraga‐González & Zsolt Sándor & Matthijs R. Wildenbeest, 2013. "Semi‐Nonparametric Estimation Of Consumer Search Costs," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 28(7), pages 1205-1223, November.
    20. McAfee R. Preston, 1995. "Multiproduct Equilibrium Price Dispersion," Journal of Economic Theory, Elsevier, vol. 67(1), pages 83-105, October.
    21. Elena Reutskaja & Rosemarie Nagel & Colin F. Camerer & Antonio Rangel, 2011. "Search Dynamics in Consumer Choice under Time Pressure: An Eye-Tracking Study," American Economic Review, American Economic Association, vol. 101(2), pages 900-926, April.
    22. Steven Salop, 1977. "The Noisy Monopolist: Imperfect Information, Price Dispersion and Price Discrimination," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 44(3), pages 393-406.
    23. Weitzman, Martin L, 1979. "Optimal Search for the Best Alternative," Econometrica, Econometric Society, vol. 47(3), pages 641-654, May.
    24. Mailath George J. & Okuno-Fujiwara Masahiro & Postlewaite Andrew, 1993. "Belief-Based Refinements in Signalling Games," Journal of Economic Theory, Elsevier, vol. 60(2), pages 241-276, August.
    25. Guido Menzio & Nicholas Trachter, 2018. "Equilibrium Price Dispersion Across and Within Stores," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 28, pages 205-220, April.
    26. Carlin, Bruce I., 2009. "Strategic price complexity in retail financial markets," Journal of Financial Economics, Elsevier, vol. 91(3), pages 278-287, March.
    27. Bart J. Bronnenberg & Jun B. Kim & Carl F. Mela, 2016. "Zooming In on Choice: How Do Consumers Search for Cameras Online?," Marketing Science, INFORMS, vol. 35(5), pages 693-712, September.
    28. Stephan Seiler, 2013. "The impact of search costs on consumer behavior: A dynamic approach," Quantitative Marketing and Economics (QME), Springer, vol. 11(2), pages 155-203, June.
    29. Michael R. Baye & John Morgan & Patrick Scholten, 2006. "Information, Search, and Price Dispersion," Working Papers 2006-11, Indiana University, Kelley School of Business, Department of Business Economics and Public Policy.
    30. KalaycI, Kenan & Potters, Jan, 2011. "Buyer confusion and market prices," International Journal of Industrial Organization, Elsevier, vol. 29(1), pages 14-22, January.
    31. Norman J. Ireland, 2007. "Posting Multiple Prices To Reduce The Effectiveness Of Consumer Price Search," Journal of Industrial Economics, Wiley Blackwell, vol. 55(2), pages 235-263, June.
    32. Harrison, Glenn W & Morgan, Peter, 1990. "Search Intensity in Experiments," Economic Journal, Royal Economic Society, vol. 100(401), pages 478-486, June.
    33. Stephan Seiler & Fabio Pinna, 2017. "Estimating Search Benefits from Path-Tracking Data: Measurement and Determinants," Marketing Science, INFORMS, vol. 36(4), pages 565-589, July.
    34. Hämäläinen, Saara, 2018. "Competitive search obfuscation," Journal of Economic Dynamics and Control, Elsevier, vol. 97(C), pages 38-63.
    35. Wilson, Chris M., 2010. "Ordered search and equilibrium obfuscation," International Journal of Industrial Organization, Elsevier, vol. 28(5), pages 496-506, September.
    36. ,, 2006. "Competition over agents with boundedly rational expectations," Theoretical Economics, Econometric Society, vol. 1(2), pages 207-231, June.
    37. Greg Taylor, 2017. "Raising search costs to deter window shopping can increase profits and welfare," RAND Journal of Economics, RAND Corporation, vol. 48(2), pages 387-408, May.
    38. Jidong Zhou, 2014. "Multiproduct Search and the Joint Search Effect," American Economic Review, American Economic Association, vol. 104(9), pages 2918-2939, September.
    39. De los Santos, Babur, 2018. "Consumer search on the Internet," International Journal of Industrial Organization, Elsevier, vol. 58(C), pages 66-105.
    40. Andrei Hagiu & Bruno Jullien, 2011. "Why do intermediaries divert search?," RAND Journal of Economics, RAND Corporation, vol. 42(2), pages 337-362, June.
    41. McAfee, R Preston & Schwartz, Marius, 1994. "Opportunism in Multilateral Vertical Contracting: Nondiscrimination, Exclusivity, and Uniformity," American Economic Review, American Economic Association, vol. 84(1), pages 210-230, March.
    42. Glenn Ellison & Alexander Wolitzky, 2012. "A search cost model of obfuscation," RAND Journal of Economics, RAND Corporation, vol. 43(3), pages 417-441, September.
    43. Stahl, Dale O, II, 1989. "Oligopolistic Pricing with Sequential Consumer Search," American Economic Review, American Economic Association, vol. 79(4), pages 700-712, September.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Hämäläinen, Saara, 2018. "Competitive search obfuscation," Journal of Economic Dynamics and Control, Elsevier, vol. 97(C), pages 38-63.
    2. Michael Grubb, 2015. "Failing to Choose the Best Price: Theory, Evidence, and Policy," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 47(3), pages 303-340, November.
    3. Janssen, Aljoscha & Kasinger, Johannes, 2021. "Obfuscation and rational inattention in digitalized markets," SAFE Working Paper Series 306, Leibniz Institute for Financial Research SAFE.
    4. Janssen, Aljoscha & Kasinger, Johannes, 2021. "Obfuscation and Rational Inattention in Digitalized Markets," Working Paper Series 1379, Research Institute of Industrial Economics.
    5. Timothy J. Richards & Gordon J. Klein & Celine Bonnet & Zohra Bouamra-Mechemache, 2020. "Strategic Obfuscation and Retail Pricing," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 57(4), pages 859-889, December.
    6. Ioana Chioveanu & Jidong Zhou, 2013. "Price Competition with Consumer Confusion," Management Science, INFORMS, vol. 59(11), pages 2450-2469, November.
    7. Paolo Crosetto & Alexia Gaudeul, 2014. "Choosing whether to compete: Price and format competition with consumer confusion," Jena Economics Research Papers 2014-026, Friedrich-Schiller-University Jena.
    8. Liu, Lu, 2019. "Non-salient fees in the mortgage market," Bank of England working papers 819, Bank of England.
    9. Chioveanu, Ioana & Zhou, Jidong, 2009. "Price Competition and Consumer Confusion," MPRA Paper 17340, University Library of Munich, Germany.
    10. Bruce I. Carlin & Florian Ederer, 2019. "Search Fatigue," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 54(3), pages 485-508, May.
    11. Ernst Fehr & Keyu Wu, 2021. "Obfuscation in competitive markets," ECON - Working Papers 391, Department of Economics - University of Zurich, revised Feb 2023.
    12. Chioveanu, Ioana, 2019. "Prominence, complexity, and pricing," International Journal of Industrial Organization, Elsevier, vol. 63(C), pages 551-582.
    13. Glenn Ellison & Alexander Wolitzky, 2012. "A search cost model of obfuscation," RAND Journal of Economics, RAND Corporation, vol. 43(3), pages 417-441, September.
    14. Paolo Crosetto & Alexia Gaudeul, 2017. "Choosing not to compete: Can firms maintain high prices by confusing consumers?," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 26(4), pages 897-922, December.
    15. Yiquan Gu & Tobias Wenzel, 2017. "Consumer confusion, obfuscation and price regulation," Scottish Journal of Political Economy, Scottish Economic Society, vol. 64(2), pages 169-190, May.
    16. Samir Mamadehussene, 2020. "The Interplay Between Obfuscation and Prominence in Price Comparison Platforms," Management Science, INFORMS, vol. 66(10), pages 4843-4862, October.
    17. Øystein Foros & Mai Nguyen-Ones & Frode Steen, 2021. "The Effects of a Day off from Retail Price Competition: Evidence on Consumer Behavior and Firm Performance in Gasoline Retailing," International Journal of the Economics of Business, Taylor & Francis Journals, vol. 28(1), pages 49-87, January.
    18. Bianchi, Milo & Bouvard, Matthieu & Gomes, Renato & Rhodes, Andrew & Shreeti, Vatsala, 2023. "Mobile payments and interoperability: Insights from the academic literature," Information Economics and Policy, Elsevier, vol. 65(C).
    19. Bruce Carlin & Arna Olafsson & Michaela Pagel, 2017. "FinTech Adoption Across Generations: Financial Fitness in the Information Age," NBER Working Papers 23798, National Bureau of Economic Research, Inc.
    20. Natalia Fabra & Juan-Pablo Montero, 2022. "Product Lines and Price Discrimination in Markets with Information Frictions," Management Science, INFORMS, vol. 68(2), pages 981-1001, February.

    More about this item

    Keywords

    Search; Multiproduct firms; Obfuscation; Substitutes; Comparison shopping; Intrafirm search frictions; Intrafirm price dispersion; Intrafirm quality variation;
    All these keywords.

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:indorg:v:85:y:2022:i:c:s016771872200039x. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/inca/505551 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.