Koh, Yumi, Gea M. Lee, Gene Moo Lee (2021) “Price Competition and Inactive Search”. Working Paper. [Latest version: April 28, 2021] [SSRN]
- Presented in 2019 Asia Pacific Industrial Organization Conference (Tokyo, Japan)
- Previous title: Price Competition and Consumer Search
We propose a model of price competition in which firms select prices conditional on privately-observed production costs and a subset of consumers can choose to search sequentially given price dispersion. We investigate how competition affects the consumers’ choice of whether to purchase immediately from a randomly-selected first firm or engage in sequential search. We establish two types of equilibria, random equilibrium and searching equilibrium, based on the consumers’ search decision in equilibrium. We show that sequential search can be completely or at least partially inactivated in the market with a sufficiently large number of competing firms.