Consumers increasingly start their online price searches from a specific retailer. We aim to determine the impact of such a prominent retailer on channel members and consumers. A search model is developed within a distribution channel where consumers sequentially search for prices across retailers. The results show that search prominence has two effects: First, it de-escalates price competition among retailers under duopoly but intensifies competition under oligopoly; second, it worsens the channel coordination between the manufacturer and the prominent retailer. We also identify how the relative size of costly search consumer segment and search costs can moderate these effects. Compared with the situation without prominence, we find that (1) in a duopoly, all channel members' prices decrease in search costs. The manufacturer (prominent retailer) is worse (better) off, whereas the non-prominent retailer is better off if the proportion of costly search consumers is low. (2) In an oligopoly, (a) whereas the wholesale price decreases in search costs, the prominent retailer's price first increases and then decreases in search costs; (b) non-prominent retailers are always worse off; and (c) the manufacturer and the prominent retailer are worse off when the search cost is medium and the proportion of costly search consumers is high, whereas both of them are better off when both the search cost and the proportion of costly search consumers are low. (3) Although search prominence does not necessarily hurt the channel profit or social surplus, our analyses suggest it always results in a decrease in consumer surplus.
Contact Emails: