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Indiana University Bloomington

BEPP

The Kelley Advantage

The department is home to the authors of Managerial Economics and Business Strategy and Games and Information: An Introduction to Game Theory, two of the nation’s leading textbooks in the field.

Research and Publications

Book Chapters

Consumer Search and Pricing Behavior in Internet Markets”

2007, Internet and Digital Economics

Maarten C.W. Janssen, José Luis Moraga-González, Matthijs R. Wildenbeest

Abstract

Despite the mixed empirical evidence, many economists hold the view that Internet will promote competition, thereby lowering prices and price dispersion and increasing welfare. One of the main reasons is that consumers find it easier to search on the Internet, thereby comparing the different price offers that are available. This article presents an overview of the existing empirical literature and provides a search model that helps understand some of the forces behind the mixed empirical evidence. The search model has two types of consumers: those who are fully informed (for example, because they use search engines) and those who are not (they search themselves). More search intensity is reflected then in two parameters: a reduction in search cost for those who search themselves and/or an increase in the search engine rate of adoption (an increase in the fraction of consumers who use search engines). The comparative statics results derived from the model may explain the controversial empirical evidence found so far.

Citation

Janssen, Maarten C.W., José Luis Moraga-González, and Matthijs R. Wildenbeest (2007), "Consumer Search and Pricing Behavior in Internet Markets," in Eric Brousseau and Nicolas Curien (eds.), Internet and Digital Economics, Cambridge University Press, pp. 460-483.

Keywords

Internet, Price dispersion, Search, Search agents