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Prominence And Market Power: Asymmetric Oligopoly With Sequential Consumer Search

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  • Makoto Hanazono
  • Noritaka Kudoh
Abstract
This article presents a new perspective on the nature of market power through the lens of firm prominence. We build a model of oligopolistic price competition with sequential consumer search, showing that a larger firm sets a higher price than its smaller competitors. Consumers are more likely to encounter sellers from a larger firm both immediately and in future interactions, resulting in less‐elastic demand for that firm. Small firms can free‐ride on the prominent firm's market power to raise their prices and earn higher profits. The Herfindahl–Hirschman Index provides a useful guide for welfare evaluation.

Suggested Citation

  • Makoto Hanazono & Noritaka Kudoh, 2024. "Prominence And Market Power: Asymmetric Oligopoly With Sequential Consumer Search," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 65(3), pages 1249-1281, August.
    • Handle: RePEc:wly:iecrev:v:65:y:2024:i:3:p:1249-1281
    DOI: 10.1111/iere.12704
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    References listed on IDEAS

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