When a consumer is familiar with one product but not its competitor, she is faced with a decision: either buy what she knows, or engage in search to learn more. When search is costly, competing firms may attempt to encourage or discourage search by adjusting prices. In this paper we consider how competitive dynamics between two quality differentiated firms are affected if one product enjoys a familiarity advantage. Familiarity is defined as a consumer’s ex-ante knowledge of fit for a particular product. An increase in the level of familiarity for one product allows a firm to charge higher prices since there are more consumers with information on that product relative to the competition. We call this the direct effect of familiarity. However, an increase in familiarity also has an indirect effect, since it gives the rival firm a stronger incentive to decrease price in order to encourage searching, in turn increasing overall competition. The effect of familiarity on profits depends on the magnitudes of these effects, and it is moderated by the level of quality differentiation between products. For very high or very low levels of differentiation, the results are relatively straightforward. However, when the level of differentiation is moderate, the results are more nuanced, with the higher-quality firm realizing higher profits from more familiarity, even if it must lower prices due to the indirect effect. We also find that, contrary to conventional wisdom, overall competition may be higher when firms are more quality differentiated. This is driven by the fact that higher quality differences bolster the indirect effect, with a lower quality firm providing deeper price cuts to counter increased familiarity of a high quality rival. We conclude by examining how changes in the cost of searching impact equilibrium outcomes.

中文翻译：

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外源产品熟悉度对内源消费者搜索的影响

当消费者熟悉一种产品但不熟悉其竞争对手时，她将面临一个决定：要么购买她所知道的产品，要么进行搜索以了解更多信息。当搜索成本很高时，竞争公司可能会试图通过调整价格来鼓励或阻止搜索。在本文中，我们考虑了如果一种产品具有熟悉优势，那么两个质量差异化公司之间的竞争动态将如何受到影响。熟悉度定义为消费者对特定产品适合性的事前知识。对一种产品的熟悉程度的提高使公司可以收取更高的价格，因为相对于竞争对手，有更多的消费者知道了该产品的信息。我们称此为熟悉的直接影响。但是，增加熟悉度也有间接影响，因为它为竞争对手提供了更强的动机来降低价格，以鼓励搜索，从而增加整体竞争。熟悉度对利润的影响取决于这些影响的程度，并由产品之间的质量差异程度来缓和。对于非常高或非常低的分化水平，结果相对简单。但是，当差异化程度适中时，结果会更加细微，即使是由于间接影响而必须降低价格，更高质量的公司也会从更多的熟悉度中获得更高的利润。我们还发现，与传统观点相反，当公司的质量差异更大时，总体竞争可能会更高。这是因为较高的质量差异会增强间接效果，一家质量较低的公司会提供更深的降价，以抵消对高质量竞争对手的日益熟悉。我们通过研究寻找平衡成本的成本变化如何得出结论。