Partial sequential search and product differentiation

• Published in: Economics letters Vol. 225; p. 111066
• Main Authors: Liu, Lin, Wang, X. Henry
• Format: Journal Article
• Language: English
• Published: Elsevier B.V 01.04.2023
• Subjects: Consumer search; Partial-depth search; Pricing; Product differentiation; Consumer search; Partial-depth search; D43; D11; Pricing; D83; L13; Product differentiation
• ISSN: 0165-1765; 1873-7374
• DOI: 10.1016/j.econlet.2023.111066

Anderson and Renault (1999) show that when search cost is needed to evaluate any product, a U-shaped relationship exists between equilibrium price and product differentiation. This paper revisits this relationship by incorporating partial-depth search in a sequential search process which allows consumers to evaluate a subset of product attributes. We show that, when search depth is endogenous, the relationship is either always positive or N-shaped, depending on the elasticity of the hazard rate function of utility distribution. •The relationship between equilibrium price and product differentiation is explored under a partial sequential search model.•The relationship is always positive with an inelastic hazard rate function of utility distribution.•However, the relationship is N-shaped with an elastic hazard rate function of utility distribution.