Price Competition and Active or Inactive Consumer Search

51 Pages Posted: 30 Oct 2019 Last revised: 6 Dec 2023

See all articles by Yumi Koh

Yumi Koh

Singapore Management University

Gea M. Lee

Singapore Management University - School of Economics

Gene Moo Lee

University of British Columbia (UBC) - Sauder School of Business

Date Written: December 5, 2023

Abstract

We propose a price-competition model in which firms set prices conditional on privately-observed heterogeneous production costs. The price-competition model integrates consumer search behavior, based on whether a subset of consumers make immediate purchases without engaging in active search or utilize the option to search sequentially, given price dispersion. We study the relationship between price competition and consumer search by simulating that competition intensifies with more firms. We find that consumer search behavior, whether active or inactive, can change price competition, particularly at higher prices. Conversely, price competition can render search inactive when the number of firms becomes sufficiently large.

Keywords: Price competition, Active or inactive consumer search, Heterogeneous production costs, Private information.

JEL Classification: D40, D83, L10

Suggested Citation

Koh, Yumi and Lee, Gea M. and Lee, Gene Moo, Price Competition and Active or Inactive Consumer Search (December 5, 2023). Available at SSRN: https://ssrn.com/abstract=3467893 or http://dx.doi.org/10.2139/ssrn.3467893

Yumi Koh

Singapore Management University

Li Ka Shing Library
70 Stamford Road
Singapore 178901, 178899
Singapore

Gea M. Lee

Singapore Management University - School of Economics ( email )

90 Stamford Road
178903
Singapore
97317099 (Phone)
23827 (Fax)

Gene Moo Lee (Contact Author)

University of British Columbia (UBC) - Sauder School of Business ( email )

2053 Main Mall
Vancouver, BC V6T 1Z2
Canada

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