Under-Promise and Over-Deliver? - Online Product Reviews and Firm Pricing
In: CEPR Discussion Paper No. DP16508
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In: CEPR Discussion Paper No. DP16508
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In: CEPR Discussion Paper No. DP14078
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Working paper
In: The Rand journal of economics, Volume 49, Issue 1, p. 224-253
ISSN: 1756-2171
AbstractThis 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.
In: American economic review, Volume 105, Issue 6, p. 1683-1710
ISSN: 1944-7981
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)
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In: CEPR Discussion Paper No. DP17350
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In: CEPR Discussion Paper No. DP15448
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Working paper
In: Journal of political economy, Volume 126, Issue 1, p. 347-380
ISSN: 1537-534X