Topic:Price Competition in Search Markets:The Role of Consumer Consideration Set

Lecturer:Tianle Zhang

Tianle Zhang, Professor of Economics and Director of the Centre for Competition Policy and Regulation, Lingnan University. His research interests include industrial organization and competition policy. Professor Zhang has published articles in many leading international academic journals, Including AEJ: Microeconomics, Economic Journal, International Economic Review, Management Science, Journal of Economics & Management Strategy, Journal of Economic Behavior & Organization, andInternational Journal of Industrial Organization. Professor Cheung has received several research grants from the Hong Kong SAR Government and has been the Associate editor of the International Journal of Industrial 0rganization since 2018.

Abstract:

We extend Stahl (1989)'s workhorse model of consumer search to incorporate heterogeneous consideration sets. In the model, firms sell identical products, and consumers engage in optimal price search. Similar to Stahl's model, some consumers incur positive search costs and conduct sequential searches, while others face zero search costs and always purchase from the firm offering the lowest price. Unlike Stahl's model, consumers conducting searches may have varying consideration sets. We first illustrate how heterogeneous consideration sets affect equilibrium outcomes in a symmetric duopoly context.When the captive-to-reach ratio is low, the equilibrium mixed pricing strategy resembles that in Stahl's model. However, with a high captive-to-reach ratio, the equilibrium differs significantly:(1) firms' pricing strategy consists of a high-price range and a low-price range, each determined by specific probabilities; (2) firms may set prices above searching consumers' reservation price with a certain probability, while at other times, they price below it;(3) some consumers may visit multiple firms before making a purchase, indicating a genuine process of sequential search; and (4)a decrease in search costs can result in higher prices.We also discuss the cases for symmetric oligopoly and for asymmetric duopoly.

Time:2:30-4:00p.m,October 23th,2024

Venue:B408,Zhixin Building,Central Campus