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A Search Model Where Consumers Choose Quantity Based on Expected Price

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  • Paolo Buccirossi

Abstract

I describe a price game in which consumers face search costs and base their quantity decision on the expected price. Because of search costs, the choice of the firm they will buy from is described by a random process. I show that the expected equilibrium price is above the monopoly price. This result does not change if demand comes from a small share of perfectly informed consumers with zero search costs.

Suggested Citation

  • Paolo Buccirossi, 2003. "A Search Model Where Consumers Choose Quantity Based on Expected Price," Journal of Industrial Economics, Wiley Blackwell, vol. 51(4), pages 427-432, December.
    • Handle: RePEc:bla:jindec:v:51:y:2003:i:4:p:427-432
    DOI: 10.1111/j.0022-1821.2003.00208.x
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    References listed on IDEAS

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    1. Stahl, Dale O., 1996. "Oligopolistic pricing with heterogeneous consumer search," International Journal of Industrial Organization, Elsevier, vol. 14(2), pages 243-268.
    2. Paolo Buccirossi, 2001. "Price competition and probabilistic demand yield the Cournot outcome, the Bertrand outcome, and much more," Working Papers in Public Economics 41, University of Rome La Sapienza, Department of Economics and Law.
    3. Paul Klemperer, 1987. "Markets with Consumer Switching Costs," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 102(2), pages 375-394.
    4. Klemperer, Paul D, 1987. "Entry Deterrence in Markets with Consumer Switching Costs," Economic Journal, Royal Economic Society, vol. 97(388a), pages 99-117, Supplemen.
    5. Stiglitz, Joseph E, 1987. "Competition and the Number of Firms in a Market: Are Duopolies More Competitive than Atomistic Markets?," Journal of Political Economy, University of Chicago Press, vol. 95(5), pages 1041-1061, October.
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