Do Consumers Search for the Highest Price? Oligopoly Equilibrium and Monopoly Optimum in Differentiated Products Markets

Norbert Schulz and Konrad Stahl

RAND Journal of Economics, 1996, vol. 27, issue 3, 542-562

Abstract: We develop a model of search among substitutes for the best combination of commodity variant and price, in which the structure of search costs is manipulable by the suppliers of these variants, e.g., by joining an existing market or opening a new one. We analyze the subgame-perfect equilibria arising in a multistage game involving specialized firms' choice of entry, variant, and price, and we compare them to a multiproduct monopolist's optimal choice. We show that equilibrium prices increase in the number of substitutes sold in one market and that, in the situation considered here, monopoly increases welfare.

Date: 1996
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