Experience Goods and Consumer Search

We introduce a search model where products differ in horizontal attributes and unobserved quality (“experience goods”), firms can establish reputation. show that the inability of consumers to observe before purchase significantly changes how frictions affect market performance. In equilibrium, higher costs reduce match values increase price but boost firms’ investment product quality. Under plausible conditions, both consumer total welfare initially cost, whereas would monotonically decrease if were observable from search. apply analysis online markets, low coexist with low-quality products. (JEL D11, D21, D83, L15)