Essays on Consumer Search, Dynamic Competition and Regulation

The last several decades have seen two important changes in the world around us. First, the role of information in the modern world is by far more important than in previous days. It is hard to imagine a day when one does not use products of the informational technology industry. Entire industries nowadays work with information, and the company with the highest stock value (Microsoft) in the world is an icon of the informational technology industry. These changes affected consumers as well. The product universe became much richer and consumers are each day bombarded by thousands of advertising messages from different firms. Second, the world is becoming more fast and dynamic, time and intertemporal considerations play a prominent role nowadays. A large part of recent inventions are focused on ways to use the available time more efficiently: easier ways of communication, faster transportation, easier housing equipment. This thesis touches upon certain aspects of these two phenomena. The first part of the thesis focuses on the role of information in consumer markets. Information about prices, product characteristics, etc. is costly to obtain for consumers. Therefore, consumers have to optimize the process of obtaining this information. Firms, in turn, adjust their behaviour in a particular way in order to profit form informational imperfections in the market. The first part of the thesis studies various issues of optimal customer behaviour as well as optimal behaviour of firms in the case when there are some informational frictions in the market. The second part of the thesis considers the role of time and dynamics for the functioning of different markets. In markets with free competition, intertemporal relations can be important for a firm’s decision whom to compete against in order to influence the balance of powers in the industry. In service markets with regulated prices, different processing times can play a crucial role in an agent’s decisions to accept or reject customers or be a reason for a moral hazard problem. These issues are covered in the second part of the thesis.

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