Consumer search and double marginalization

Maarten Janssen, Sandro Shelegia

The well-known double marginalization problem understates the inefficiencies
arising from vertical relations in consumer search markets where consumers are
uninformed about the wholesale prices charged by manufacturers to retailers. Con-
sumer search provides a monopoly manufacturer with an additional incentive to
increase its price, worsening the double marginalization problem and lowering the
manufacturer's profits. Nevertheless, manufacturers in more competitive wholesale
markets may not have an incentive to reveal their prices to consumers. We show
that retail prices decrease in search cost, and so both industry profits and consumer
surplus increase in search cost.

Department of Economics
No. of pages
Publication date
Austrian Fields of Science 2012
502047 Economic theory
Portal url