Consumer Search With Prominence

This thesis proposes three sequential search models in which consumers inspect prominent …rms at …rst and then decide whether or not to sample non-prominent …rms.In the …rst model,there is an intermediary that can choose the number of prominent …rms and can decide which …rms are prominent.We show that the price of prominent …rms decreases with the number of prominent …rms.However,if prominent …rms collude with each other,the alliance gains some monopoly power.And the price of prominent …rms increases with the number of prominent …rms.Moreover,as prominent…rms charge a higher price and get more pro…t in the collusive case,the optimal number of prominent…rms in the collusive case is higher than the number in the competitive case.The second model introduces the quality dispersion of products to the prominent search model.Di¤erent from Wolinsky(1984),we use an indirect method to solve the demand.The indirect method sums the probability,with which consumers will purchase from a representative …rm,to get the demand of …rms.We …nd that,with a prominent …rm,non-prominent …rms have less total demand and less pro…t.Therefore,there are fewer …rms that will enter the market in equilibrium.Moreover,our welfare analysis shows that the introduction of prominence alleviates excessive variety and raises total welfare.The third model is a sequential search model in which consumers freely observe products’ prices and prior values before the search and decide whether and in which order to identify the match values for a positive search cost.We allow consumers to purchase a product without incurring a search cost to inspect the match value,which we call "blind buying",under which the optimal search policy is no longer as per Weitzman(1979).When the match value has a symmetric distribution,both consumers and …rms are indi¤erent to the search order,conditional on searching.We show that,with the blind buying,an increase in the …rst-sample search cost reduces equilibrium prices,while it has no e¤ect on market prices in existing price-directed search models.The e¤ect of the second-sample search cost on market prices is the same as in existing price-directed search models,but the underlying mechanisms are quite di¤erent.Our welfare analysis shows that,blind buying always increases total welfare.And it increases market prices and industrial pro…ts if and only if the …rst-sample search cost is below a threshold value.We also show that being prominent can adversely a¤ect a …rm if the match value is asymmetrically distributed,which contrasts the literature.