Price Competition and Inactive Search

46 Pages Posted: 30 Oct 2019 Last revised: 16 Jun 2021

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: June 7, 2021

Abstract

We propose a model of price competition in which firms select prices conditional on privately-observed production costs and a subset of consumers can choose to search sequentially given price dispersion. In the model, we investigate how competition affects the consumers’ choice of whether to purchase immediately from a randomly-selected first firm or engage in sequential search. Two types of symmetric pure-strategy equilibria, random equilibrium and searching equilibrium, are established based on the consumers’ search decision. The results show that sequential search can be completely or at least partially inactivated in the market with a sufficiently large number of competing firms.

Keywords: price dispersion, random search, sequential search, incomplete information, heterogeneous production costs, clickstream data

JEL Classification: D40, D83, L10

Suggested Citation

Koh, Yumi and Lee, Gea M. and Lee, Gene Moo, Price Competition and Inactive Search (June 7, 2021). 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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