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Prominence and Consumer Search: The Case With Multiple Prominent Firms
- Publisher
- Wiley
- Copyright
- © The RAND Corporation
- ISSN
- 0741-6261
- eISSN
- 1756-2171
- DOI
- 10.1111/1756-2171.12024
- Publisher site
- See Article on Publisher Site
Abstract
We study the incentives to merge and the aggregate implications of mergers in a Bertrand competition model where firms sell differentiated products and consumers search sequentially for satisfactory deals. When search frictions are substantial, firms have an incentive to merge and to retail their products within a single store, which induces consumers to begin their search there. Such a merger lowers the profits of the outsiders and may benefit consumers due to more efficient search. Overall welfare may even increase. If the merged entity limits itself to coordinating the prices of the constituent firms, merging may not be profitable.
Journal
The Rand Journal of Economics – Wiley
Published: Sep 1, 2013