Information is costly. Hence, a consumer may decide to learn the utilities of a few available alternatives instead of searching them all. The decision to be partially informed has an effect on market prices, quantities, and location decisions of firms.
The thesis of Vaiva Petrikaite contributes to the stream of economics literature on costly consumer search by addressing incentives to merge and engage in collusion. It is found that high search costs prevent horizontal integration if the joint price setting is the only change after a merger takes place.
However, if the firms can reallocate their varieties and establish a multiproduct shop then merging is both profitable and welfare improving. The post-merger welfare improvement comes from significant savings on consumer search costs. The incentives to collude and to deviate from a cartel decrease if the search costs increase. However, it is found that cartels are more likely to survive if the search costs increase.
Vaiva Petrikaite (Lithuania, 1981) studied economics in Vilnius. She conducted her PhD research at the Faculty of Economics and Business and will be awarded her PhD on 24 May (12.45pm). Her thesis supervisor is prof.dr. J.L. Moraga-Gonzalez and the thesis title: The effects of costly consumer search on mergers and cartels. Petrikaite will continue to work at the FEB.
Article by Barend Abeln and Jan Jacobs on the website of the ESB (Economic Statistical Reports)
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