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
Access to external full text or publisher's version may require subscription.
Full-text Version
Publisher’s Version
Language
English
Recommended Citation
Chen, Y., & Zhang, T. (2017). Entry and welfare in search markets. Economic Journal. Advance online publication. doi: 10.1111/ecoj.12412