On Polarized Prices and Costly Sequential Search

Ruth Gilgenbach (gilgenbach@smu.edu)
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Ruth Gilgenbach: Southern Methodist University

No 907, Departmental Working Papers from Southern Methodist University, Department of Economics

Abstract: This paper presents a homogenous goods duopoly model of costly sequential consumer search with three classes of consumers: costless searchers; moderately costly searchers; and consumers for whom search costs are extremely high--higher than the value they attach to the good. Under certain conditions, the mixed-strategy Nash equilibrium price distribution is one where low and high, but never moderate, prices are charged. In equilibrium, free searchers will always search for both prices, very costly searchers never will, and moderately costly searchers will engage in actual search with positive probability. Interestingly, the existence of consumers who do not themselves search for prices allows for the introduction of an equilibrium where costly search does occur.

Keywords: Some; Sequential search; pricing; duopoly. (search for similar items in EconPapers)
JEL-codes: D43 D83 L11 L13 (search for similar items in EconPapers)
Date: 2009-11
New Economics Papers: this item is included in nep-com and nep-mic
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