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Referrals in Search Markets

Author

Listed:
  • Maria Arbatskaya

    (Emory University)

  • Hideo Konishi

    (Boston College)

Abstract

This paper compares the equilibrium outcomes in search markets with and without referrals. Although it seems clear that consumers would benefit from referrals, it is not at all clear whether firms would unilaterally provide information about competing offers since such information could encourage consumers to purchase the product elsewhere. In a model of a horizontally differentiated product market with sequential consumer search, we show that valuable referrals can arise in the equilibrium: a firm will give referrals to consumers whose ideal product is suffciently far from the firms offering. We allow firms to price-discriminate among consumers, and consumers to misrepresent their tastes. It is found that the equilibrium profits tend to be higher in markets with referrals than in the ones without. Consumers tend to be better o¤ in the presence of referrals when search costs are not too low, and under a certain parameter range, referrals lead to a Pareto improvement.

Suggested Citation

  • Maria Arbatskaya & Hideo Konishi, 2005. "Referrals in Search Markets," Boston College Working Papers in Economics 614, Boston College Department of Economics, revised 10 May 2011.
  • Handle: RePEc:boc:bocoec:614
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    References listed on IDEAS

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    Cited by:

    1. Simona Grassi & Ching-to Albert Ma, 2016. "Information acquisition, referral, and organization," RAND Journal of Economics, RAND Corporation, vol. 47(4), pages 935-960, November.
    2. Jianqiang Zhang & Zhuping Liu & Raghunath Singh Rao, 2018. "Flirting with the enemy: online competitor referral and entry-deterrence," Quantitative Marketing and Economics (QME), Springer, vol. 16(2), pages 209-249, June.
    3. Daniele Condorelli & Andrea Galeotti & Vasiliki Skreta, 2018. "Selling through referrals," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 27(4), pages 669-685, October.
    4. Ding, Ke & Gokan, Toshitaka & Zhu, Xiwei, 2013. "Search, matching, and self-organization of a marketplace," IDE Discussion Papers 396, Institute of Developing Economies, Japan External Trade Organization(JETRO).
    5. Larry G. Epstein & Hiroaki Kaido & Kyoungwon Seo, 2016. "Robust Confidence Regions for Incomplete Models," Econometrica, Econometric Society, vol. 84, pages 1799-1838, September.
    6. Priazhkina, Sofia & Page, Frank H., 2018. "Sharing market access in buyer–seller networks," Journal of Economic Theory, Elsevier, vol. 175(C), pages 415-446.
    7. Ke Ding & Toshitaka Gokan & Xiwei Zhu, 2017. "Small business and the self-organization of a marketplace," The Annals of Regional Science, Springer;Western Regional Science Association, vol. 58(1), pages 1-19, January.

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    More about this item

    Keywords

    horizontal referrals; consumer search; information; matching; broker commission.;
    All these keywords.

    JEL classification:

    • C7 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory
    • D4 - Microeconomics - - Market Structure, Pricing, and Design
    • D8 - Microeconomics - - Information, Knowledge, and Uncertainty
    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance

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