Intermediaries and consumer search
International Journal of Industrial Organization
Advance online publication
Consumer search, Intermediary, Search engine, Search platform, Online marketplace, Vertical differentiation
This paper discusses how intermediaries, such as a search engine and an online marketplace, may affect consumer search. We propose an analytical framework that encompasses several models of search for differentiated products, with a high-quality firm being more likely to offer a product that meets each consumer’s need. An intermediary improves consumer search efficiency by providing a search platform on which positions are sold to high-quality firms through competitive bidding. While the intermediary may admit too many or too few firms to its platform, compared to what would maximize consumer surplus or total welfare, its presence can nevertheless benefit consumers and improve welfare. However, the intermediary may reduce search efficiency when firms are differentiated only horizontally, when they sell experience or credence goods, or when the intermediary is biased (possibly due to vertical integration).
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Chen, Y., & Zhang, T. (2017). Intermediaries and consumer search. International Journal of Industrial Organization. Advance online publication. doi: 10.1016/j.ijindorg.2017.08.001