Microeconomics Seminar (ETH/UZH)

Experience Goods, Consumer Search, and Intermediaries

Yongmin Chen (University of Colorado at Boulder )
Experience Goods, Consumer Search, and Intermediaries
April 27, 2017 | 16:15 - 17:30 | SOF-G21

Abstract.

This paper studies consumer search in experience-goods markets. Firms are differentiated both horizontally and vertically, with a higher-quality firm being more likely to offer a high-quality product. By searching a firm, a consumer uncovers its product’s price and match value, but can learn product quality only after consumption. We characterize the market equilibrium under sequential search, and compare it with that for “inspection goods”---the focus of the extant literature---where search also reveals product quality. An intermediary improves search efficiency for inspection goods, but may worsen it for experience goods. In the latter case, we identify mechanisms that restore the intermediary’s role in facilitating consumer search.

Joint with Tianle Zhang.