Title

Entry and welfare in search markets

Document Type

Journal article

Source Publication

Economic Journal

Publication Date

4-2017

Volume

Advance online publication

Publisher

Wiley-Blackwell Publishing Ltd.

Abstract

The welfare effects of entry are studied in a model of consumer search. Potential entrants differ in quality, with high-quality sellers being more likely to meet consumer needs. Contrary to the standard view in economics that more entry benefits consumers, we find that free entry is excessive for both consumer welfare and total welfare when entry cost is relatively low, and consumer welfare has an inverted-U relationship with entry cost. We explain why these results may arise naturally in search markets due to the search variety and search quality effects of entry, and discuss their business and policy implications.

DOI

10.1111/ecoj.12412

Print ISSN

00130133

E-ISSN

14680297

Publisher Statement

Copyright © 2016 Royal Economic Society

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Full-text Version

Publisher’s Version

Recommended Citation

Chen, Y., & Zhang, T. (2017). Entry and welfare in search markets. Economic Journal. Advance online publication. doi: 10.1111/ecoj.12412

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