Affiliation:
1. Research School of Economics Australian National University Canberra ACT Australia
2. School of Economics and Management Harbin Institute of Technology, Shenzhen Shenzhen China
3. School of Economics Renmin University of China Beijing China
Abstract
AbstractWe develop a consumer search model in which consumers may remain uncertain about product quality even after inspecting the product. We first consider the postsearch uncertainty regarding vertical quality, and characterize the separating equilibrium in which firms with different quality levels charge different prices. If quality information is not sufficiently transparent after the search, then prices between the low‐ and the high‐quality products can either diverge or converge as the search cost decreases, depending on the degrees of horizontal and vertical product differentiation. We further extend the model to include the postsearch uncertainty about the horizontal match value and to endogenize the firm's quality choice.
Subject
Management of Technology and Innovation,Strategy and Management,Economics and Econometrics,General Business, Management and Accounting,Colloid and Surface Chemistry,Physical and Theoretical Chemistry