Consumer Search and Retail Market Structure

Rhodes, Andrew and Zhou, Jidong (2018) Consumer Search and Retail Market Structure. TSE Working Paper, n. 18-928, Toulouse

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A puzzling feature of many retail markets is the coexistence of large multiproduct firms and smaller firms with narrow product ranges. This paper provides a possible explanation for this puzzle, by studying how consumer search frictions influence the structure of retail markets. In our model single-product firms which supply different products can merge to form a multiproduct firm. Consumers wish to buy multiple products, and due to search frictions value the one-stop shopping convenience associated with a multiproduct firm. We find that when search frictions are relatively large all ?rms are multiproduct in equilibrium. However when search frictions are smaller the equilibrium market structure is asymmetric, with di¤erent retail formats coexisting. This allows firms to better segment the market, and as such typically leads to the weakest price competition. When search frictions are low this asymmetric market structure is also the worst for consumers. Moreover due to the endogeneity of market structure, a reduction in the search friction can increase market prices and harm consumers.

Item Type: Monograph (Working Paper)
Language: English
Date: June 2018
Place of Publication: Toulouse
Uncontrolled Keywords: consumer search, multiproduct pricing, one-stop shopping, retail market structure, conglomerate merger
JEL codes: D11 - Consumer Economics - Theory
D43 - Oligopoly and Other Forms of Market Imperfection
D83 - Search; Learning; Information and Knowledge; Communication; Belief
L13 - Oligopoly and Other Imperfect Markets
Divisions: TSE-R (Toulouse)
Institution: University Toulouse 1 Capitole
Site: UT1
Date Deposited: 11 Jun 2018 07:13
Last Modified: 27 Aug 2018 13:05

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