TALKING,SEARCHING, AND PRICING* |
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| Authors: | Andrea Galeotti |
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| Institution: | 1. University of Essex, UK;2. I thank an editor and two anonymous referees for their useful comments. Earlier versions of this article have circulated under the title “Consumer Networks and Search Equilibria,” which was a revised chapter of my Ph.D. thesis. I am indebted to the members of the committee of my Ph.D. thesis for their valuable comments on the preliminary version of the paper: Sanjeev Goyal, Antoni‐Armengol Calvo, Kenneth Burdett, Marten Janssen, and Jose‐Luis Moraga Gonzalez. Please address correspondence to: Andrea Galeotti, Department of Economics, University of Essex, Wivenhoe Park, Colchester CO4 3SQ, UK. E‐mail: . |
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| Abstract: | I study the implications of interpersonal communication for incentives for consumers to acquire information and firms’ pricing behavior. Firms market a homogeneous product and choose its price; consumers acquire price information at some cost to themselves. Also, each consumer accesses the information acquired by a sample of other consumers—interpersonal communication. An exogenous increase in the level of interpersonal communication decreases the information that consumers acquire, and, when search costs are low, firms price less aggressively. In an extension, consumers may choose to invest in interpersonal communication at some cost. A decrease in the costs of interpersonal communication decreases firms’ competition. |
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