Consumer Search and Price Competition

Michael Choi, Anovia Yifan DAI, Kyungmin Kim

    Research output: Contribution to journalJournal articlepeer-review

    55 Citations (Scopus)

    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
    Pages (from-to)1257-1281
    Number of pages25
    JournalEconometrica
    Volume86
    Issue number4
    DOIs
    Publication statusPublished - 2018

    Scopus Subject Areas

    • Economics and Econometrics

    User-Defined Keywords

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

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