Tuesday, February 28, 2017
Alexei Parakhonyak and Maria Titova discuss Shopping Malls, Platforms and Consumer Search.
ABSTRACT: Abstract: We consider a general model of a market for differentiated goods, in which firms are located in marketplaces: shopping malls or platforms. There are search frictions between the marketplaces, but not within them. Marketplaces differ in their size. We show that consumers prefer to start their search from the largest marketplace and continue in the descending order of their size. We show that the descending search order is the only search order which can be a part of an equilibrium for any market configuration. Despite charging lower prices, firms at larger marketplaces earn higher profits, and under free entry all firms cluster at one place. If a marketplace determines the price of entry, the equilibrium marketplace size depends negatively on search costs.