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Paper #1605

Títol:
Beliefs and consumer search in a vertical industry
Autors:
Maarten Janssen i Sandro Shelegia
Data:
Març 2018
Resum:
This paper studies vertical relations in a search market. As the wholesale arrangement between a manufacturer and its retailers is typically unobserved by consumers, their beliefs about who is to be blamed for a price deviation play a crucial role in determining wholesale and retail prices. The common assumption in the consumer search literature is that consumers exclusively blame an individual retailer for a price deviation. We show that in the vertical relations context, predictions based on this assumption are not robust in the sense that if consumers assign just a small probability to the event that the upstream manufacturer is responsible for the deviation, equilibrium predictions are qualitatively di erent. For the robust beliefs, the vertical model can explain a variety of observations, such as retail price rigidity (or, alternatively, low cost pass-through), non-monotonicity of retail prices in search costs, and (seemingly) collusive retail behavior. The model can be used to study a monopoly online platform that sells access to final consumers.
Paraules clau:
Vertical relations, consumer search, double marginalization, product differentiation, price rigidities
Codis JEL:
D40, D83, L13
Àrea de Recerca:
Economia de l'Empresa i Organització Industrial

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