Ordered Search with Asymmetric Product Design

Consumers with unit demand search sequentially two firms selling horizontally differ-entiated products. One firm sells a niche product for which consumer tastes are very heterogeneous, while the other firm sells a generic product. Each consumer searches in the same order: either niche-generic or generic-niche. From this setting we find the results as follows. The second firm sets a higher price than the top firm because the second firm holds more match information from consumer arrivals than the top firm. Prices can even drop in the consumer heterogeneity of a particular firm if more consumers are induced to search that firm. The industry profit is higher if the niche firm is placed at the top, followed by the generic firm because the same ordering dampens consumer search and thus relaxes competition. Therefore if a platform, whose profit is an increasing function of the joint profit, determines the product ordering, it chooses the niche-generic ordering. The same product ordering provides the niche firm larger profit than the reverse ordering. The same product ordering is even preserved by strategic consumers for some parameter ranges if the platform allows them to freely choose the searching paths. Furthermore afte