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A Note on Costly Sequential Search and Oligopoly Pricing

Author

Listed:
  • Maarten C.W. Janssen

    (Faculty of Economics, Erasmus Universiteit Rotterdam)

  • Jose Luis Moraga-Gonzalez

    (Groningen University)

  • Matthijs R. Wildenbeest

    (Faculty of Economics, Erasmus Universiteit Rotterdam)

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. This discussion paper has resulted in a publication in the International Journal of Industrial Organization . (2005, 23(5-6), 451-66.)

Suggested Citation

  • Maarten C.W. Janssen & Jose Luis Moraga-Gonzalez & Matthijs R. Wildenbeest, 2004. "A Note on Costly Sequential Search and Oligopoly Pricing," Tinbergen Institute Discussion Papers 04-068/1, Tinbergen Institute.
    • Handle: RePEc:tin:wpaper:20040068
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    References listed on IDEAS

    as
    1. Stahl, Dale O., 1996. "Oligopolistic pricing with heterogeneous consumer search," International Journal of Industrial Organization, Elsevier, vol. 14(2), pages 243-268.
    2. Simon P. Anderson & Regis Renault, 1999. "Pricing, Product Diversity, and Search Costs: A Bertrand-Chamberlin-Diamond Model," RAND Journal of Economics, The RAND Corporation, vol. 30(4), pages 719-735, Winter.
    3. Burdett, Kenneth & Judd, Kenneth L, 1983. "Equilibrium Price Dispersion," Econometrica, Econometric Society, vol. 51(4), pages 955-969, July.
    4. Reinganum, Jennifer F, 1979. "A Simple Model of Equilibrium Price Dispersion," Journal of Political Economy, University of Chicago Press, vol. 87(4), pages 851-858, August.
    5. Rafael Rob, 1985. "Equilibrium Price Distributions," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 52(3), pages 487-504.
    6. Stiglitz, Joseph E, 1987. "Competition and the Number of Firms in a Market: Are Duopolies More Competitive than Atomistic Markets?," Journal of Political Economy, University of Chicago Press, vol. 95(5), pages 1041-1061, October.
    7. Stahl, Dale O, II, 1989. "Oligopolistic Pricing with Sequential Consumer Search," American Economic Review, American Economic Association, vol. 79(4), pages 700-712, September.
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    Citations

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    Cited by:

    1. Janssen, Maarten C.W. & Non, Marielle C., 2008. "Advertising and consumer search in a duopoly model," International Journal of Industrial Organization, Elsevier, vol. 26(1), pages 354-371, January.
    2. Maarten C.W. Janssen & Jose Luis Moraga-Gonzalez & Matthijs R. Wildenbeest, 2004. "Consumer Search and Oligopolistic Pricing: An Empirical Investigation," Tinbergen Institute Discussion Papers 04-071/1, Tinbergen Institute.
    3. Ruth G. Gilgenbach, 2009. "On Polarized Prices and Costly Sequential Search," Departmental Working Papers 0907, Southern Methodist University, Department of Economics.

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    More about this item

    Keywords

    sequential consumer search; oligopoly; price dispersion;
    All these keywords.

    JEL classification:

    • C13 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Estimation: General
    • D40 - Microeconomics - - Market Structure, Pricing, and Design - - - General
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

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