We examine search costs and product variety among multi-product retailers. Search costs may rise in variety, because consumers have more alternatives to consider, but may fall on the margin as product variety allows better matches between consumers and brands. We estimate a hierarchical model that disentangles the effect of variety on brand and store search costs. Our findings reveal that search costs within each store rise in product variety, suggesting that retailers reduce consumer search by offering deeper product assortments. But, the cost of searching among stores falls in product variety, which limits the exercise of market power.
Review of Industrial Organization – Springer Journals
Published: Jul 12, 2016
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