Friday, January 16, 2009
Posted by D. Daniel Sokol
Jidong Zhou (Department of Economics, University College London) discusses Prominence and Consumer Search: The Case With Multiple Prominent Firms.
ABSTRACT: This paper extends Armstrong, Vickers, and Zhou (2007) to the case with multiple prominent firms. All consumers first search among prominent firms, and if their products are not satisfactory, they continue to search among non-prominent ones. Prominent firms will charge a lower price than their non-prominent rivals as in the case with a single prominent firm, but relative to the situation without any prominent firm, the presence of more than one prominent firm can induce all firms to raise their prices. We also characterize how market prices and welfare vary with the number of prominent firms.