Consumer Search and Price Competition

Michael Choi, Anovia Yifan Dai, Kyungmin Kim

Research output: Contribution to journalArticle

6 Scopus citations

Abstract

We consider an oligopoly model in which consumers engage in sequential search based on partial product information and advertised prices. By applying Weitzman's (1979) optimal sequential search solution, we derive a simple static condition that fully summarizes consumers' shopping outcomes and translates the pricing game among the sellers into a familiar discrete-choice problem. Exploiting the discrete-choice reformulation, we provide sufficient conditions that guarantee the existence and uniqueness of market equilibrium and analyze the effects of preference diversity and search frictions on market prices. Among other things, we show that a reduction in search costs raises market prices.

Original languageEnglish (US)
Pages (from-to)1257-1281
Number of pages25
JournalEconometrica
Volume86
Issue number4
DOIs
StatePublished - Jan 1 2018

Keywords

  • Bertrand competition
  • Consumer search
  • online shopping
  • price advertisements
  • product differentiation

ASJC Scopus subject areas

  • Economics and Econometrics

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