Can Prominence Matter even in an Almost Frictionless Market?

Abstract

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? I 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. I 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

Reference

Andrew Rhodes, “Can Prominence Matter even in an Almost Frictionless Market?”, The Economic Journal, vol. 121, 2011, pp. 297–308.