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Pricing, Consumer Search and the Size of Internet Markets

Author

Listed:
  • Maarten C.W. Janssen

    (Erasmus University Rotterdam)

  • Jose Luis Moraga

    (Groningen University)

Abstract

Despite the mixed empirical evidence, many economists stillhold to the view that Internet will promote competition betweenfirms,thereby lowering prices and increasing economic welfare. This paperpresents a search model that provides a different view. We analyzethemarket for a homogeneous good where some consumers are fully informedwhile others are not. Depending on the parameter values, there may bethree types of equilibria and the comparative statics results aredifferent for each of these equilibria. For example, a reduction insearch cost may raise equilibrium prices when consumers' searchintensity is low, but reduce prices when consumers search intensityis high. These different comparative statics results may explain themixed empirical evidence found so far.

Suggested Citation

  • Maarten C.W. Janssen & Jose Luis Moraga, 2000. "Pricing, Consumer Search and the Size of Internet Markets," Tinbergen Institute Discussion Papers 00-042/1, Tinbergen Institute.
    • Handle: RePEc:tin:wpaper:20000042
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    Citations

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    Cited by:

    1. Michael R. Baye & John Morgan, 2004. "Price Dispersion in the Lab and on the Internet: Theory and Evidence," RAND Journal of Economics, The RAND Corporation, vol. 35(3), pages 448-466, Autumn.
    2. 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.
    3. Glenn Ellison & Sara Fisher Ellison, 2009. "Search, Obfuscation, and Price Elasticities on the Internet," Econometrica, Econometric Society, vol. 77(2), pages 427-452, March.
    4. Borraz, Fernando & Livan, Giacomo & Rodríguez-Martínez, Anahí & Picardo, Pablo, 2022. "Price, sales, and the business cycle: Microeconomic evidence," Latin American Journal of Central Banking (previously Monetaria), Elsevier, vol. 3(1).
    5. Michael R. Baye & John Morgan & Patrick Scholten, 2004. "Price Dispersion In The Small And In The Large: Evidence From An Internet Price Comparison Site," Journal of Industrial Economics, Wiley Blackwell, vol. 52(4), pages 463-496, December.
    6. Randy A. Nelson & Richard Cohen & Frederik Roy Rasmussen, 2007. "An Analysis of Pricing Strategy and Price Dispersion on the Internet," Eastern Economic Journal, Eastern Economic Association, vol. 33(1), pages 95-110, Winter.
    7. Martin Sefton & John Morgan, 2001. "Information externalities in a model of sales," Economics Bulletin, AccessEcon, vol. 4(7), pages 1-5.

    More about this item

    Keywords

    Internet; price dispersion; search; search agents;
    All these keywords.

    JEL classification:

    • D40 - Microeconomics - - Market Structure, Pricing, and Design - - - General
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

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