English, Article, Journal or magazine article edition: Costly Search and Design Heski Bar-Isaac; Guillermo Caruana; Vicente Cuñat

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Bookmark: http://trove.nla.gov.au/version/155044
Physical Description
  • preprint
Language
  • English

Edition details

Title
  • Costly Search and Design
Author
  • Heski Bar-Isaac
  • Guillermo Caruana
  • Vicente Cuñat
Physical Description
  • preprint
Notes
  • Firms compete by choosing both a price and a design from a family of designs that can be represented as demand rotations. Consumers engage in costly sequential search among firms. Each time a consumer pays a search cost he observes a new offering. An offering consists of a price quote and a new good, where goods might vary in the extent to which they are good matches for the consumer. In equilibrium, only two design- styles arise: either the most niche where consumers are likely to either love or loathe the product, or the broadest where consumers are likely to have similar valuations. In equilibrium, different firms may simultaneously offer both design-styles. We perform comparative statics on the equilibrium and show that a fall in search costs can lead to higher industry prices and profits and lower consumer surplus. Our analysis is related to discussions of how the internet has led to the prevalence of niche goods and the "long tail" phenomenon.
  • Product design, search costs, long tail
  • RePEc:upf:upfgen:1155
Language
  • English
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