We study the interplay between quality provision and consumer search in a search market where firms may design products … of inferior quality to promote them to naive consumers who fail to fully understand product characteristics. We derive an … equilibrium in which both superior and inferior quality is offered and show that as search frictions vanish, the share of firms …

The management and marketing literature has found that consumers generally expect high quality sellers to post high … prices. We show that low quality firms can exploit this in search markets to generate a low-price perception. This price … perception can lead to low quality firms dominating search markets while producing a vertically inferior good at equal cost to …