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Review of Industrial Organization

, Volume 47, Issue 3, pp 273–302 | Cite as

Search and Ripoff Externalities

  • Mark Armstrong
Article

Abstract

This paper surveys models of markets in which only some consumers are “savvy”. I discuss when the presence of savvy consumers improves the deals available to all consumers (the case of search externalities), and when the non-savvy consumers fund generous deals for all consumers (ripoff externalities). I also discuss when the two groups of consumers have aligned or divergent views about market interventions. The analysis focusses on two kinds of models: (1) an indivisible product in a market with price dispersion; and (2) products that involve add-on pricing.

Keywords

Add-on pricing Bounded rationality Consumer protection Consumer search Externalities Price dispersion 

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Copyright information

© Springer Science+Business Media New York 2015

Authors and Affiliations

  1. 1.Department of Economics and All Souls CollegeUniversity of OxfordOxfordUK

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