PROMINENCE AND CONSUMER SEARCH

This paper examines the implications of “prominence” in search markets. We modelprominence by supposing that the prominent firm will be sampled first by all consumers.If there are no systematic quality differences among firms, we find that the prominentfirm will charge a lower price than its non-prominent rivals. The impact of making afirm prominent is that it will typically lead to higher industry profit but lower consumersurplus and welfare. The model is extended by introducing heterogeneous productqualities, in which case the firm with the highest-quality product has the greatestincentive to become prominent, and making it prominent will boost industry profit,consumer surplus and welfare....