David Myatt

Abstract:

We study markets in which buyers engage in costly search to find a good deal. We adopt the solution concept of stable prices, which builds upon the idea that any movement in a firm's price is followed by an opportunity for its competitors to respond with special offers. We identify a unique, distinctive, and closed-form pattern of disperse stable prices, and pair that price profile with optimal fixed-sample search. In an equilibrium with active search, the intensity of search and consumer surplus are lower and industry profit is higher with more competitors. In a sufficiently concentrated oligopoly, there can be complete search in such an equilibrium that eliminates all industry profits.