Experience Goods and Consumer Search
- American Economic Journal: Microeconomics (Forthcoming)
We introduce a search model where products differ in horizontal attributes
and unobserved quality ('experience goods'), and firms can establish quality reputation.
We show that the inability of consumers to observe quality before purchase significantly
changes how search frictions affect market performance. In equilibrium, higher search costs
reduce match values and increase price, but can boost firms' investment in product quality.
Under plausible conditions, both consumer and total welfare initially increase in search
cost, whereas both would monotonically decrease if quality were observable from search.
We apply the analysis to online markets, where low search costs coexist with low-quality
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