New product introduction with costly search |
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Authors: | Chung Yi Tse |
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Institution: | aSchool of Economics and Finance, University of Hong Kong, Pokfulam Road, Hong Kong |
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Abstract: | In the usual model of product market search, a low search cost can turn out to have detrimental incentives on new product introduction as the low search cost erodes firms’ market power, attenuating the profit from innovation. This paper studies a model of monopolistic competition with costly search, where the point of departure is that of a fixed cost of initiating search. In this environment, a low search cost could turn out to be favorable to innovation. At a low search cost, more consumers may decide to start searching, possibly resulting in higher profits for firms in the larger market, despite the erosion of market power. |
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Keywords: | Product market search Innovation New product introduction |
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