A Search Model of Experience Goods

The economics literature on consumer search has focused on inspection goods, the quality of which is observed before purchase. This paper studies a model of experience goods where consumers search for desired varieties but can observe product quality only after consumption. The model yields price an...

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Bibliographic Details
Published inIDEAS Working Paper Series from RePEc
Main Authors Chen, Yongmin, Li, zhuozheng, Zhang, Tianle
Format Paper
LanguageEnglish
Published St. Louis Federal Reserve Bank of St. Louis 01.01.2019
Subjects
Economic models
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Summary:The economics literature on consumer search has focused on inspection goods, the quality of which is observed before purchase. This paper studies a model of experience goods where consumers search for desired varieties but can observe product quality only after consumption. The model yields price and welfare results that are contrary to those for inspection goods. Specifically, we find that equilibrium price may rise even when search intensity is higher and, under plausible conditions, both consumer and social welfare are initially increasing in search cost. Our analysis shows that quality observability is a key determinant of how search markets function.