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We investigate the role of search frictions in markets with price competition and how it leads to sorting of heterogeneous agents. There are two aspects of value creation: the match value when two agents actually trade and the probability of trading governed by the search technology. We show that positive assortative matching obtains when complementarities in the former outweigh complementarities in the latter. This happens if and only if the match-value function is root-supermodular, that is, its nth root is supermodular, where n reflects the elasticity of substitution of the search technology. This condition is weaker than the condition required for positive assortative matching in markets with random search.

This paper focuses on the impacts of food vendors that have emerged primarily or exclusively to redeem benefits for the Women, Infants and Children (WIC) Program. Federal regulations impose strict requirements on state WIC agencies which authorize vendors that derive more than 50% of their food sales through WIC. Such vendors are commonly known as above-50 or A50 vendors, and most state WIC agencies do not authorize them. Using extensive transactions-level data for the Greater Los Angeles area (GLA), we examine A50 vendors’ performance in the WIC program, including their pricing behavior relative to other WIC vendors in a but-for world where A50 vendors are not authorized. We also conduct econometric tests designed to gauge A50 vendors’ impacts on WIC program access and participation, and costs charged for WIC foods by other program vendors. Results indicate that A50 vendors operating in GLA (a) modestly reduced WIC program food costs relative to a but-for world where they were not authorized, (b) had a modest pro-competitive effect on the pricing behavior of small, non-A50 vendors, which have tended to charge the highest absolute prices for WIC foods in California, (c) caused a modest reduction in participant travel distance (and, hence, transaction costs), and (d) appear to have facilitated participant access. On balance, our results suggest that A50 vendors can improve the food-delivery environment for the WIC program and facilitate participant access to WIC benefits without imposing additional food costs on the program.

Observers argue that evidence for the persuasive role of advertising comes from competitive categories where increases in advertising lead to higher average prices. Conversely, others claim that advertising serves a purely informational role. Here, higher levels of advertising lead to better-informed consumers and this should increase competition and stimulate lower prices. The objective of this study is to neither confirm nor refute either of these perspectives. It is rather to show that increases in informative advertising alone can lead to both higher or lower prices. I further show that the direction of this relationship depends on the level of differentiation between competing firms. Similar to Grossman and Shapiro (1984), I examine conditions where the differences between competing products are small, but I also examine conditions where the differences are significant. The role of advertising is to inform consumers about individual products and higher advertising for a product means that more of the potential market knows about it. Higher levels of advertising increase the relative importance of fully informed consumers compared to partially informed consumers. This dynamic is the basis for explaining why informative advertising can push prices either up or down in a uniformly distributed spatial market.

In a product market where consumers are open to uninformed purchases, we study competition between a traditional and an online retailer in the presence of showrooming. Several results are obtained. First, showrooming intensifies competition and lowers both firms’ profits, thus supporting traditional and online retailers’ recent strategy of carrying more exclusive varieties. Second, lowering consumer search costs may aggravate showrooming and decrease the traditional retailer’s profits for intermediate search costs. Third, opening an online store expands the demand of the traditional retailer but intensifies competition, thus lowering its profits under certain conditions. Fourth, a return policy by the online retailer alleviates showrooming and relaxes competition but weakly reduces its demand, increasing its profits only for intermediate search costs. The return policy (weakly) increases the traditional retailer’s profits. Fifth, when search cost is not high enough, price matching by the traditional retailer may also intensify competition and hurt its profits. We then examine how webrooming interacts with showrooming. When webrooming resolves partial match uncertainty, it may increase both firms’ profits by inducing more consumers to participate. The online appendix is available at https://doi.org/10.1287/mksc.2018.1084 .

•Some retailers choose to display pricing cues while others do not.•We determine when the display of pricing cues is beneficial to different retailers.•Pricing-cue display is affected by sales-support and pricing-cue portability.•Service-focused retailers should display less-than-fully-portable pricing cues. Retailers that do not consistently display pricing cues (e.g., “Save $200″) may face lower demand from consumers who do not benefit from the additional transaction utility, a fact that is well-documented in the extant literature. This study investigates why some retailers choose not to display pricing cues despite these documented benefits, how optimal prices are affected by the display of pricing cues, and which type of retailer – service-focused or price-focused – is more likely to display pricing cues. Analysis of our analytical model of competing retailers with asymmetric sales support reveals two effects of pricing-cue display: a “direct-demand effect” and a “competitive effect.” We find that when both retailers display a pricing cue, they can charge a higher price due to the increased transaction utility provided to customers (“direct-demand effect”). However, in the asymmetric scenario, when only one retailer displays a pricing cue, it has the additional effect of lowering the price of the non-displaying retailer (“competitive effect”). Further, we find that the price dispersion is higher when a service-focused retailer displays a pricing cue and the competing price-focused retailer does not, leading that case to be the more likely asymmetric equilibrium. Empirical analysis of price and pricing-cue data for consumer-electronics products across several online retailers validates our analytical findings. Our analytical and empirical assessments underscore the significance of retailers’ pricing-cue display strategies and their impact on consumers, offering both academic and managerial implications. [Display omitted]

This paper proposes a model in which identical sellers of a homogeneous product compete in both prices and price frames (i.e., ways to present price information). Frame choices affect the comparability of price offers and may cause consumer confusion and lower price sensitivity. In equilibrium, firms randomize their frame choices to obfuscate price comparisons and sustain positive profits. The nature of the equilibrium depends on whether frame differentiation or frame complexity is more confusing. Moreover, an increase in the number of competitors induces firms to rely more on frame complexity, and this may boost industry profits and lower consumer surplus. This paper was accepted by J. Miguel Villas-Boas, marketing.

This article studies market competition when firms can influence consumers' ability to compare market alternatives through their choice of price \"formats.\" In our model, the ability of a consumer to make a comparison depends on the firms' format choices. Our main results concern the interaction between firms' equilibrium price and format decisions and its implications for industry profits and consumer switching rates. In particular, market forces drive down the firms' profits to a \"constrained competitive\" benchmark if and only if the comparability structure satisfies a property that we interpret as a form of \"frame neutrality.\" The same property is necessary for equilibrium behavior to display statistical independence between price and format decisions. We also show that narrow regulatory interventions that aim to facilitate comparisons may have an anticompetitive effect.

This article introduces a new way to measure competition based on firms' profits. Within a general model, we derive conditions under which this measure is monotone in competition, where competition can be intensified both through a fall in entry barriers and through more aggressive interaction between players. The measure is shown to be more robust theoretically than the price cost margin. This allows for an empirical test of the problems associated with the price cost margin as a measure of competition.

In reverse supply chain (RSC) systems, disruptions in the collection process of used items may negatively influence the efficiency of RSC participators. Inspired by a real case study, this paper contributes to the RSC systems coordination literature by analyzing the effect of collection disruptions on the efficiency of an RSC system with dual collection channels using a coordination contract approach. Moreover, this study explores the effect of collection competition between two collection channels (collector channel and remanufacturer channel) on the acquisition prices offered to consumers as incentive schemes for returning the used items. This study determines the equilibrium solutions for selling prices of remanufactured products, acquisition prices, and transfer price under decentralization, centralization, and coordination settings. Additionally, this study incorporates the impact of collection disruptions into the remanufacturer’s and collector’s problem considering four scenarios. Furthermore, this study proposes a disruption-based two-part tariff contract to accomplish channel coordination in the RSC system with dual-collection channel under collection disruptions. Our finding reveals that the suggested coordinated scheme efficiently coordinates the disrupted RSC with dual collection channels even when under high possibility of collection disruptions. Moreover, our coordination plan is of environmental and economic benefits, as it can boost the return quantities and can increase RSC participators’ profits.

We explore patterns of price competition in an oligopoly where consumers vary in the set of firms they consider for their purchase and buy from the lowest-priced firm they consider. We study a pattern of consideration, termed “symmetric interactions,” that generalizes models used in existing work (duopoly, symmetric firms, and firms with independent reach). Within this class, equilibrium profits are proportional to a firm’s reach, firms with a larger reach set higher average prices, and a reduction in the number of firms (either by exit or by merger) harms consumers. However, increased competition (either by entry or by increased consumer awareness) does not always benefit consumers. We go on to study patterns of consideration with asymmetric interactions. In situations with disjoint reach and with nested reach, we find equilibria in which price competition is “duopolistic”: only two firms compete within each price range. We characterize the contrasting equilibrium patterns of price competition for all patterns of consideration in the three-firm case.