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Prominence and consumer search

Prominence and consumer search This article examines the implications of “prominence” in search markets. We model prominence by supposing that the prominent firm will be sampled first by all consumers. If there are no systematic quality differences among firms, we find that the prominent firm will charge a lower price than its less prominent rivals. Making a firm prominent will typically lead to higher industry profit but lower consumer surplus and welfare. The model is extended by introducing heterogeneous product qualities, in which case the firm with the highest‐quality product has the greatest incentive to become prominent, and making it prominent will boost industry profit, consumer surplus, and welfare. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png The Rand Journal of Economics Wiley

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References (25)

Publisher
Wiley
Copyright
© 2009, RAND
ISSN
0741-6261
eISSN
1756-2171
DOI
10.1111/j.1756-2171.2009.00062.x
Publisher site
See Article on Publisher Site

Abstract

This article examines the implications of “prominence” in search markets. We model prominence by supposing that the prominent firm will be sampled first by all consumers. If there are no systematic quality differences among firms, we find that the prominent firm will charge a lower price than its less prominent rivals. Making a firm prominent will typically lead to higher industry profit but lower consumer surplus and welfare. The model is extended by introducing heterogeneous product qualities, in which case the firm with the highest‐quality product has the greatest incentive to become prominent, and making it prominent will boost industry profit, consumer surplus, and welfare.

Journal

The Rand Journal of EconomicsWiley

Published: Jun 1, 2009

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