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Consumers networks and search equilibria

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  • Galeotti, Andrea

Abstract

We explore the effect of local information sharing among consumers on market functioning. Consumers are embedded in a consumers network, they may costly search non-sequentially for price quotations and the information gather are non-excludable along direct links. We first show that when search costs are low consumers randomize between searching for one price and two price quotations (high search intensity equilibrium). Otherwise, consumers randomize between searching for one price and not searching at all (low search intensity equilibrium). In both equilibria consumers search less frequently in denser networks. The main result of the paper show that when search costs are low the expected price and the social welfare increase, while the consumer surplus decreases, as the consumers network becomes denser. These results are reverse when search costs are high.

Suggested Citation

  • Galeotti, Andrea, 2005. "Consumers networks and search equilibria," Working Papers 1225, California Institute of Technology, Division of the Humanities and Social Sciences.
  • Handle: RePEc:clt:sswopa:1225
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    References listed on IDEAS

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    1. Stahl, Dale O., 1996. "Oligopolistic pricing with heterogeneous consumer search," International Journal of Industrial Organization, Elsevier, vol. 14(2), pages 243-268.
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    Cited by:

    1. Atayev, Atabek, 2021. "Truly costly search and word-of-mouth communication," ZEW Discussion Papers 21-090, ZEW - Leibniz Centre for European Economic Research.
    2. Galeotti, Andrea & Goyal, Sanjeev, 2007. "Games of Social Influence," Economics Discussion Papers 2980, University of Essex, Department of Economics.
    3. Atabek Atayev, 2021. "Truly Costly Search and Word-of-Mouth Communication," Papers 2110.00032, arXiv.org.
    4. Babutsidze, Zakaria & Cowan, Robin, 2009. "Inertia, Interaction and Clustering in Demand," MERIT Working Papers 2009-045, United Nations University - Maastricht Economic and Social Research Institute on Innovation and Technology (MERIT).

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    More about this item

    Keywords

    Networks; local externalities; non-sequential search;
    All these keywords.

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness

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