Costly Buyer Search In Laboratory Markets With Seller Advertising
Source: Purdue University (Krannert)
In this laboratory experiment sellers simultaneously post prices and choose whether to advertise. Buyers then decide whether to buy from a seller whose advertisement they have received, or engage in costly sequential search to obtain price quotes from other sellers. In the unique symmetric equilibrium, sellers either charge a high unadvertised price or randomize in an interval of lower advertised prices. Increases in either search or advertising costs raise equilibrium prices, and equilibrium advertising intensity decreases with lower search costs and higher advertising costs.