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Vertical Relations in the Search Markets

Student: Polina Koroleva

Supervisor: Maarten Christiaan Wilhelmus Janssen

Faculty: Faculty of Economic Sciences

Educational Programme: Economics: Research Programme (Master)

Year of Graduation: 2019

This work is devoted to the analysis of the influence of consumers out-of-equilibrium beliefs on the results of agents interaction. We consider markets with vertical relations where consumer search is important. An extensive review of the literature on this field of research is presented. On its basis, the results from the basic model are compared, where consumers blame the deviations of the nearest retailers with the new situation when consumers accuse only a high-cost retailer. The model of wholesale price discrimination in case of the manufacturer's commitment Janssen and Reshidi (2018) is used as the background. Shifting the blame from all retailers to one high-cost seller increases consumer incentives to shop and look for discounts. Thus, the competition in the retail market increases, which leads to an increase in the profit of the manufacturer and a reduction in the profit margin of retailers. Consumers are also worse off. It is interesting that the dispersion of wholesale and retail prices increases due to the actions of manufacturer to attract buyers to cheap stores

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