Dynamic Pricing and Inventory Control of Substitute Products
Manufacturing & Service Operations Management
Drivers of Finished-Goods Inventory in the U.S. Automobile Industry
Management Science
Customer-Driven vs. Retailer-Driven Search: Channel Performance and Implications
Manufacturing & Service Operations Management
Seller Search and Market Outcomes in Online Auctions
Management Science
Retail Assortment Planning Under Category Captainship
Manufacturing & Service Operations Management
Using Transaction Prices to Re-Examine Price Dispersion in Electronic Markets
Information Systems Research
Manufacturing & Service Operations Management
Product and Price Competition with Satiation Effects
Management Science
Optimal Search for Product Information
Management Science
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This paper studies a model in which consumers search among multiple competing firms for products that match their preferences at a reasonable price. We focus on how easier search, possibly due to the adoption of search-facilitating technologies such as the Internet, influences equilibrium prices, assortments, firm profits, and consumer welfare. Conventional wisdom suggests that easier search creates a competition-intensifying effect that puts pressure on firms to lower their prices and reduce assortments. However, in our model we demonstrate that search also exhibits a market-expansion effect that encourages firms to expand their assortment---easier search means that each firm is searched by more consumers. Because of broader assortments, consumers are more likely to find products that better match their ideal preferences, improving the efficiency of the market. In fact, we demonstrate that the market-expansion effect can even dominate the competition-intensifying effect potentially leading to higher prices, broader assortments, more profits, and expanded welfare.