Koh, Yumi, Gea M. Lee, Gene Moo Lee (2026) “Competition Against Itself: Search Dilution and Inactivation”. Working Paper. [Latest version: August 2026] [SSRN]
- Presented at APIOC 2019 and EARIE 2023
- Previous title: Price Competition and Consumer Search
When does competition discipline prices? The answer depends on how consumer search responds to competition. We develop an incomplete-information model where firms price under private cost heterogeneity and consumers choose between immediate purchase and sequential search. Search regimes–inactive or active–emerge endogenously from cost heterogeneity, the search cost, and market thickness. Under inactive search, competition can trigger a search-dilution effect that pushes the expected price upward. Under active search, competition instead erodes price dispersion as the market thickens, causing the regime to contract or collapse. Either way, competition can thus undermine the very search channel of price discipline.