This paper shows that when the alternatives offered to consumers span preference space (as it would be chosen by a firm), search or evaluation costs may lead not and choose if too many few are offered. If offered, then consumer have engage in searches evaluations find satisfactory fit. costly result avoiding making choice altogether. choose, fearing an acceptable is unlikely. These two forces existence of finite optimal number maximizes probability choice.

This paper examines the interaction of information provision, product quality, and pricing decisions by competitive firms to explore following question: in a market where consumers face uncertainty about quality and/or their preference for which firms—those that sell higher- or lower-quality products—have higher incentive provide what type information? We find while higher-quality firm should always resolving consumer on under certain conditions will have be one preferences. In analysis, we...

This paper explores whether and how a firm should adapt its strategy in view of consumer use prior customer ratings. Specifically, we consider optimal pricing the offer an unexpected frill to early customers enhance their product experiences. We show that if price history is unobserved by consumers, forward-looking always modify from single-period one, but it may be do so lowering price, offering frills, or raising depending on market growth rate. last becomes when rate high enough. The...

Showrooming, the phenomenon of consumers visiting a brick-and-mortar (B&M) store to learn about products but then buying online obtain lower prices, is attracting increased attention both in business practice and academic literature. It considered major threat B&M retailers, determining “how fight it” seems be only consideration. However, manufacturer's need for retail informational services has always been one essential reasons retailers exist means achieve profitability. The...

Buyer search costs for price are changing in many markets. Through a model of buyer and seller behavior, I consider the effects on prices both when product differentiation is fixed it endogenously determined equilibrium. If firms cannot change design, lower lead to increased competition. However, if design decision variable, may also higher differentiation, which decreases In this case, overall effect even be prices, social welfare, industry profits. The result especially interesting because...

Until recently, brand identities were built by firms via image advertising. However, the flourishing consumer communication weakened firms' grip on their brands. The interaction between advertising and communications joint impact identity is focal point of this paper. We present a model in which preference for functional attributes may correlate with they desire to project themselves. This correlation known firm but not consumers. Both consumers can communicate desired identity, although...

Optimal adjustment of the product variety due to consumer quality inference from opinion leader recommendations.

We consider the optimal two-part tariff contract between a manufacturer and retailer. show that retail competition (in presence of either fixed costs or bargaining power) may lead to slotting allowances in an contract, even with monopoly no information asymmetry. On other hand, do not arise retailer asymmetry, whether is not. also more intense competition, higher power, larger costs, lower marginal retailing, as well relative size (whether coming from location operating advantage), have...

Consumers value status goods because of the impression status-product ownership makes on other consumers, and this depends actual distribution in population. Explicitly modeling consumer products as coming from information product conveys to authors show that a manufacturer can benefit competitor's cost reduction price associated with it. In words, they two are (imperfect) substitutes utility function may be complements profit function. As consequence, competition could lead higher prices...

This paper explores the consumer value of publicly associating oneself with a brand image. The economic such association to is coming from its affect on information exchange between consumers engaged in search for partnerships each other. It turns out that use can be valuable communication even when they do not have proper incentives make simple conversations or informative. In particular, correlation interests agents partnership low, are very informative, while remains informative and...

In many markets, there is likely to be correlation both across periods in terms of the choices one consumer and consumers their each period. The former caused by heterogeneity, latter may result demand common shocks consumers. Furthermore, if firms partially observe these shocks, market decisions end up being endogenous correlated with shocks. Because researchers cannot typically fully heterogeneity estimation method must account for endogeneity firms’ decisions. this article, authors...

This paper analyzes the competitive role of retail shopping experience in markets with consumer search costs. We examine how a retailer's advantage providing affects its equilibrium pricing and price advertising strategies. find that if valuation is sufficiently low, effect on retailer strategy similar to quality, then deploys higher levels advertising. On other hand, when valuable enough for consumers, it acts akin makes optimal eschew The investments can be than monopoly. profit impact...

This paper considers the possibility that a firm can invest not only in true product quality, but also activities such as merchandizing and store atmospherics influence consumer perception of quality. Consumers make their purchase decisions based on signal (perception) quality they experience, where is influenced by both valued affect at time formation. In this situation, finds it optimal to variables inducing affect, even though rational consumers, equilibrium, correctly solve back for We...

One of the characteristics fashion marketplace is unpredictability and apparent randomness hits. Another one information asymmetry among consumers. In this paper, we consider as a means consumers use to signal belonging higher social rank propose an analytical model hits in presence competition who can coordinate on which product use. We show that, consistent with observed market phenomenon, equilibrium, consumer coordination involves randomization between products chosen, i.e., Analyzing...

Oftentimes, close competitors carry partially overlapping assortments in seeming contradiction to the principle of maximum differentiation. One justifications such practice is that an assortment with competitive prices on common products may prevent further consumer search and therefore could be useful even when profits from do not justify costs carrying them. In this paper, we examine validity intuition show strategy indeed optimal consumers are uncertain about they might find elsewhere...

Conventional advice to firms in competitive markets is raise barriers against poaching of their customers. However, we see instances where a firm enables competitor advertising its For example, Walmart hosts banner ads for TVs from Sears customers searching on Walmart.com, risking loss exchange commission. This paper explores whether and under what conditions allowing one’s store may be beneficial strategy. We analyze duopoly market are heterogeneous search costs, information, preferences....

A well-established phenomenon of consumer buying behavior is that consumers evaluate prices relative to a reference point and exhibit loss aversion; i.e., their propensity buy more negatively affected by above the than it positively below point. The objective this paper analytically examine how competitive strategy profitability firms are presence aversion in price dimension. Although we assume increases search for lower prices, find does not necessarily lead or profits when compete over...

Managers have long appreciated having loyal customers, and academic research has explored the benefits of consumers as coming from reduced price competition. This paper extends this by considering how loyalty affects firms’ decisions to facilitate search for nonloyal consumers. We show that in equilibrium, store with more customers ends up lower costs even if facilitating is costless. The intuition result expect higher prices at a larger segment, therefore, set cost counteract negative...

This paper analyses firms' decisions to provide connectivity their customers. We distinguish between intraconnectivity—the ability of one firm's customers connect each other—and interconnectivity—the with another The profitability implications allowing are not a straightforward consequence the consumer value connectivity, because affects only customer but also intensity competition by creating or changing network externality. find that if sales driven brand switching rather than category...

Collecting data first before knowing what to do with them can be detrimental.

Inequality may be a unique outcome in symmetric markets with two-sided search.

We examine the impact of consumer search on firms’ product line strategy and show how it critically depends consumer-product fit distribution.