Directed Consumer Search

This paper develops a framework that allows the order in which consumers visit firms to depend on a priori available product information and consumer preferences. Consumers first visit the firm which is most likely to offer the product best to their liking. Prices and profits turn out to be higher than under the traditional assumption of a random search order. Under the proposed search rule consumers obtain on average a better match and search less often. These gains in efficiency result in higher total welfare, although consumers are worse off under the alternative search rule due to higher prices. JEL Classification Numbers: D83, L13, D43.