English, Article, Journal or magazine article edition: Referrals in Search Markets Maria Arbatskaya; Hideo Konishi

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Bookmark: http://trove.nla.gov.au/version/73543
Physical Description
  • preprint
Language
  • English

Edition details

Title
  • Referrals in Search Markets
Author
  • Maria Arbatskaya
  • Hideo Konishi
Physical Description
  • preprint
Notes
  • This paper compares equilibrium outcomes in search markets with and without referrals. Although consumers would benefit from honest referrals, it is not at all clear whether firms would unilaterally provide information about competing offers since such information could encourage a consumer to purchase the product elsewhere. In a model of a horizontally differentiated product and sequential consumer search, we show that valuable referrals can arise as a part of equilibrium: firm will give referrals to consumers whose ideal product is sufficiently far from the firm’s offering. The effect of referrals on the equilibrium prices is examined, and it is found that prices are higher in markets with referrals. Although consumers can be made worse off by the existence of referrals, referrals lead to a Pareto improvement as long as search cost is not too low relative to product heterogeneity. The effects of referral fees and third-party referrals are examined, and policy implications are drawn.
  • RePEc:emo:wp2003:0521
  • This paper compares the equilibrium outcomes in search markets with and without referrals. Although it seems clear that consumers would benefit from honest referrals, it is not at all clear whether firms would unilaterally provide information about competing offers since such information could encourage the consumer to purchase the product elsewhere. In a model of a horizontally differentiated product and sequential consumer search, we show that valuable referrals can arise in the equilibrium: a firm will give referrals to consumers whose ideal product is sufficiently far from the firm's offering. It is found that prices in the equilibrium are higher in markets with referrals. Although referrals can make consumers worse off, referrals lead to a Pareto improvement as long as the search cost is not too low relative to product heterogeneity. The effects of referral fees and third-party referrals are examined, and policy implications are drawn.
  • horizontal referrals, consumer search, information, matching, broker commission.
  • RePEc:boc:bocoec:614
Language
  • English
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