Paying for Prominence

Authors


  •  Corresponding author: Mark Armstrong, Department of Economics, University of Oxford, Manor Road, Oxford OX1 3UQ, UK. Email: mark.armstrong@ucl.ac.uk.

  • We are grateful to Heski Bar-Isaac, Carli Coetzee, Glenn Ellison, John Morgan, David Myatt, Marco Ottaviani, Andrew Rhodes, Tom Ross, Rani Spiegler, John Vickers and Chris Wilson for helpful comments and to the British Academy for funding assistance.

Abstract

We investigate how firms can become ‘prominent’ and thereby influence the order in which consumers consider options. First, firms can affect sales efforts by means of commission payments, in which case the salesman steers consumers towards expensive products. Second, sellers can advertise prices on a price comparison website, so that consumers investigate the suitability of products in order of increasing price. Here, prices are lower when search costs are higher. Finally, consumers might first consider their existing supplier for subsequent purchases, which suggests a relatively benign rationale for the prevalence of cross-selling in markets such as retail banking.

Ancillary