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  3. American Economic Journal: Microeconomics
  4. February 2020
  5. Searching for Service

Searching for Service

  • Maarten C. W. Janssen
  • T. Tony Ke
American Economic Journal: Microeconomics
vol. 12, no. 1, February 2020
(pp. 188-219)
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Abstract

Since Telser (1960), there is a well-established argument that a competitive market will not provide service due to freeriding. We show that with search frictions, the market may well provide service if the cost of doing so is not too large. Any market equilibrium with service provision has two or more firms providing service, implying overprovision of service as the social optimum mandates at most one service provider. Firms that provide service and those that do not can coexist, where consumers direct their search to service providers first to obtain service, and to nonservice providers later to enjoy lower prices.

Citation

Janssen, Maarten C. W., and T. Tony Ke. 2020. "Searching for Service." American Economic Journal: Microeconomics, 12 (1): 188-219. DOI: 10.1257/mic.20180315

Additional Materials

JEL Classification

  • D11 Consumer Economics: Theory
  • D21 Firm Behavior: Theory
  • D83 Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
  • L42 Vertical Restraints; Resale Price Maintenance; Quantity Discounts
  • L81 Retail and Wholesale Trade; e-Commerce
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