Journal Articles

Truly Costly Sequential Search and Oligopolistic Pricing

2005, International Journal of Industrial Organization

Maarten C.W. Janssen, José Luis Moraga-González, Matthijs R. Wildenbeest

Abstract

We modify the paper of Stahl (1989) [Stahl, D.O., 1989. Oligopolistic pricing with sequential consumer search. American Economic Review 79, 700–12] by relaxing the assumption that consumers obtain the first price quotation for free. When all price quotations are costly to obtain, the unique symmetric equilibrium need not involve full consumer participation. The region of parameters for which non-shoppers do not fully participate in the market becomes larger as the number of shoppers decreases and/or the number of firms increases. The comparative statics properties of this new type of equilibrium are interesting. In particular, expected price increases as search cost decreases and is constant in the number of shoppers and in the number of firms. Welfare falls as firms enter the market. We show that monopoly pricing never obtains with truly costly search.

Citation

Janssen, Maarten C.W., José Luis Moraga-González, and Matthijs R. Wildenbeest (2005), "Truly Costly Sequential Search and Oligopolistic Pricing," International Journal of Industrial Organization, Vol. 23, pp. 451-466.

Keywords

Sequential consumer search, Oligopoly, Price dispersion

Kelley School of Business

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