2019/09/11 by Maarten Janssen, Sandro Shelegia · 1 citation
Business, Management and Accounting · Economics, Econometrics and Finance · #Consumer Market Behavior and Pricing #Digital Platforms and Economics #Merger and Competition Analysis
paper · doi:10.1093/jeea/jvz046
openalex publication_date 2019/09/11 · openalex created_date 2025/10/10 · openalex updated_date 2026/07/22
Abstract This paper studies vertical relations in a search market. As the wholesale arrangement between a manufacturer and its retailers is typically unobserved by consumers, their beliefs about who is to be blamed for a price deviation play a crucial role in determining wholesale and retail prices. The common assumption in the consumer search literature is that consumers exclusively blame an individual retailer for a price deviation. We show that in the vertical relations context, predictions based on this assumption are not robust in the sense that if consumers hold the upstream manufacturer at least partially responsible for the deviation, equilibrium predictions are qualitatively different. For robust beliefs, the vertical model can explain a variety of observations, such as retail price rigidity (or, alternatively, low cost pass-through), nonmonotonicity of retail prices in search costs, and (seemingly) collusive retail behavior. The model can be used to study a monopoly online platform that sells access to final consumers.