Truly costly search and word-of-mouth communication


Atayev, Atabek


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URL: https://madoc.bib.uni-mannheim.de/61113
URN: urn:nbn:de:bsz:180-madoc-611139
Document Type: Working paper
Year of publication: 2021
The title of a journal, publication series: ZEW Discussion Papers
Volume: 21-090
Place of publication: Mannheim
Publication language: English
Institution: Sonstige Einrichtungen > ZEW - Leibniz-Zentrum für Europäische Wirtschaftsforschung
MADOC publication series: Veröffentlichungen des ZEW (Leibniz-Zentrum für Europäische Wirtschaftsforschung) > ZEW Discussion Papers
Subject: 330 Economics
Classification: JEL: D43 , D83 , D85,
Keywords (English): consumer search , word-of-mouth communication , social networks
Abstract: In markets with search frictions, consumers can acquire information about goods either through costly search or from friends via word-of-mouth (WOM) communication. How do sellers’ market power react to a very large increase in the number of consumers’ friends with whom they engage in WOM? The answer to the question depends on whether consumers are freely endowed with price information. If acquiring price quotes is costly, equilibrium prices are dispersed and the expected price is higher than the marginal cost of production. This implies that firms retain market power even if price information is disseminated among a very large number of consumers due to technological progress, such as social networking websites

Das Dokument wird vom Publikationsserver der Universitätsbibliothek Mannheim bereitgestellt.




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