Revise and Resubmits
We study the pricing behavior of a multiproduct retailer, when consumers must pay a search cost to learn its prices. Equilibrium prices are high, because consumers understand that visiting a store exposes them to a hold-up problem. However a firm with more products charges lower prices, because it attracts consumers who are more price-sensitive. When a firm advertises a low price on one product, consumers rationally expect it to charge somewhat lower prices on its other products as well. Low-price advertising can therefore be used to build a 'low price image'. In equilibrium, retailers randomize over both their advertised and unadvertised prices. The model therefore generates price dispersion in a simple way.
(Previously circulated as 'Multiproduct Pricing and the Diamond Paradox')
Re-examining the effects of switching costs
Young Economist Award, European Association for Research in Industrial Economics, 2012 Annual Conference
Consumers often incur costs when switching from one product to another. Recently there has been renewed debate within the literature about whether these switching costs lead to higher prices. We build a theoretical model of dynamic competition and solve it analytically for a wide range of switching costs. We provide a simple condition which determines whether switching costs raise or lower long-run prices. We also show that switching costs are more likely to increase prices in the short-run. Finally switching costs redistribute surplus across time, and as such are shown to sometimes increase consumer welfare.
The Economic Journal, Vol. 121, Issue 556, pp. F297-F308, 2011
Consumer search on the internet is rarely random. Sponsored links appear higher up a webpage and consumers often click them. Firms also bid aggressively for these 'prominent' positions at the top of the page. But why should prominence matter, when visiting an additional website is almost costless? We present a model in which consumers know their valuations for the products offered in the market, but do not know which retailer sells which product. We show that a prominent retailer earns significantly more profit than other firms, even when the cost of searching websites and comparing products is essentially zero.
Behavior-based pricing with experience goods (with Romain de Nijs)
Economics Letters, Vol. 118, Issue 1, pp. 155-158, 2013
We consider a two-period model in which duopolists sell experience goods and practice behavior-based price discrimination (BBPD). We give general conditions for when firms should offer a lower price to existing customers ('pay-to-stay') or to new customers ('pay-to-switch'). We also demonstrate that unlike previous results, BBPD may intensify competition in the first period but weaken it in the second.
Work in progress
“Repeat consumer search”
“Consumer protection and deception” (joint with Chris Wilson)
“Retention Strategies” (joint with Romain de Nijs and Alexei Parakhonyak)