We explore the role of prominence in equilibrium pricing in markets where search is sequential and random. Our model key feature is that more prominent firms are more likely to be sampled first. In contrast to ordered-search models, we find that more prominent firms inherit larger but less elastic demands, and as such have incentives to post larger prices. However, they might post lower prices but still charge higher markups than less prominent competitors only if they are also sufficiently more efficient. Our results suggest that when search is sequential, the role of prominence depends on whether it modifies the order or just the chances with which firms are sampled.
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Carrasco, J.A., Yañez, R. Sequential search and firm prominence. Econ Theory (2021). https://doi.org/10.1007/s00199-021-01363-8
- Search theory