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Consumers networks and search equilibria

Galeotti, Andrea (2005) Consumers networks and search equilibria. Working Paper. California Institute of Technology, Division of the Humanities and Social Sciences Working Papers 1225.

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We explore the effect of local information sharing among consumers on market functioning. Consumers are embedded in a consumers network, they may costly search non-sequentially for price quotations and the information gather are non-excludable along direct links. We first show that when search costs are low consumers randomize between searching for one price and two price quotations (high search intensity equilibrium). Otherwise, consumers randomize between searching for one price and not searching at all (low search intensity equilibrium). In both equilibria consumers search less frequently in denser networks. The main result of the paper show that when search costs are low the expected price and the social welfare increase, while the consumer surplus decreases, as the consumers network becomes denser. These results are reverse when search costs are high.

Item Type: Monograph (Working Paper)
Uncontrolled Keywords: Networks; local externalities; non-sequential search
Subjects: H Social Sciences > HB Economic Theory
Divisions: Faculty of Social Sciences > Economics, Department of
Depositing User: Jim Jamieson
Date Deposited: 16 Jul 2012 14:39
Last Modified: 16 Jul 2012 14:39

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